Calculating bond's value, stock's value, preferred stock r.

PLEASE SHOW WHAT EQUATIONS WOULD BE USED TO COMPLETE THE BELOW PROBLEMS.

A1. (Bond valuation) A 1,000 face value bond has remaining maturity of 10 years and a required return of 9%. The bond's coupon rate is 7.4%. What is the fair value of this bond?

A10. (Dividend discount model) Assume RHM is expected to pay a total cash dividend of $5.60 next year and its dividends are expected to grow at a rate of 6% per year forever. Assuming annual dividends payments, what is the current market value of a share of RHM stock if the required return on RHM common stock is 10%.

A12. (Required return for a preferred stock) James River $3.38 preferred is selling for $45.25. The preferred dividend is nongrowing. What is the required return on James River preferred stock?

Solution Preview

I can help you with problem A1 if you prefer to use financial calculator.

A1. To find the value of the bond

The equation used to solve this question is the bond's value equation.

Bond's value, VB = INT / (1 + rd)^1 + INT / (1 + rd)^2 + . . . + INT / (1 + rd)^N + M / (1 + rd)^N

We could simply discount each cash flow back to the present and sum these PVs to find the bond's value. However, this procedure is not very efficient, especially ...

Solution Summary

This solution shows a step-by-step calculation of the bond's value, common stock's value, and required return for a preferred stock. It provides students with a clear perspective of the differences between bond, common stock, and preferred stock.

Calculating cost of capital. ... Market value of zero coupon debt=$20,378,145 Let us calculate market value of 5 ... It also calculates weighted average cost of capital. ...

... by definition is an average cost as it calculates the weighted ...Bond valuation, interest rate, constant growths and preferred stock values are examined. ...

... a horizon period for analysis and calculates the horizon ... The model can be used to calculate three values... Compute the price of the bonds for these maturity dates ...

...Calculate the NPV of the following project using a ... on investments, discount rates, present values, and bond pricing ... P=present value, F= Future value r= rate of ...

... n = 12 A is the amount we need to calculate. ... 0.46043 $60 $27.63 10 0.42241 $1,060 $447.76 Current bond price = $807.47. ... PV factor at 9% has been calculated as 1 ...

... br> <br>There are three steps in calculating the weighted ... the rate of return needs to be calculated given the ... 7) = 11.65% <br> <br>Step 3. Calculate a weighted ...

... 2 and 3. a) Use the payback method to calculate how many ... If you purchase the bond for $1,100 and hold it ... return (r). The formula for the current price of stock...

... solve for IRR using a financial calculator by entering ... a. The present value of the cost of buying ... Return Standard Deviation Stocks 13.00% 9.80% Bonds 8.40% 3.20 ...

... f. What would you pay for a bond that pays an ... j. Calculate the NPV of the following project using a ... P=present value, F= Future value r= rate of interest n ...