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Bond Questions - YTM, Current Yield

1. Determine the yield to maturity (to the nearest tenth of 1 percent) of an 8-year zero coupon bond ($1,000 par value) that is currently selling for $521.

2. A WPI 10s 08 bond closed at 89. What is the current yield on this bond?

3. The earnings and dividends of MicroSun Computer Co. are expected to grow at an annual rate of 15 percent over the next 4 years and then slow to a constant growth rate of 8 percent per year. MicroSun currently pays a dividend of $0.50 per share. What is the value of MicroSun stock to an investor who requires a 14 percent rate of return?

4. What is the current value of a share of Chyrox if its current dividend is $1.50 and dividends are expected to grow at an annual rate of 20 percent for the next 5 years? Assume the investor has a required rate of return of 15 percent and expects to sell the security in 5 years for $72.

5. HDTV has planned on diversifying into the dual-VCR field. As a result, HDTV's beta would rise to 1.6 from 1.2 and the expected future long-term growth rate in the firm's earnings would increase from 12% to 16%. The expected market return, km, is 14%; the risk free rate, rf, is 7%; and the current dividend, Do, is $0.50. Should HDTV go into the dual-VCR field?

6. Richtex Brick has a current dividend of $1.70 and the market value of its common stock is $28. The expected market return is 13 percent and the risk-free rate is 9 percent. If Richtex stock is half as volatile as the market, and the market is in equilibrium, what rate of growth is expected for Richtex's dividends assuming a constant growth valuation model is appropriate for Richtex?

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Solution Summary

The solution computes current yield, yield to maturity for bond. It also provides an example to compute value of stock by using constant growth valuation model .