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. ...

... price of the bond we need to calculate / read from ... Price at which bond sold= $1,000.00 Price without the put ... y = 5 years and 10 years have to be calculated; ...

... 6.75% Answer: Yield= is bond, you must What maximum risk can you ... We will have to calculate IRR ... than IRR IRR (Internal rate of return) is calculated using Excel ...

... Given this information, calculate the fair value of the call ... The bonds have a par value of $1,000, market price of ... has a preferred stock with a par value of $30 ...

... 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 ...

... j. Calculate the NPV of the following project using a ... he present value of your winnings at an 8% discount rate ... The assumption is that the bond has a $1,000 face ...

... Formula for cost of equity from new stock issues = D1 ... $1,000 coupon rate 9% years to maturity 10 bond's price $1,100. ... D1 $2 g 4% we need to calculate r. r= 17.33 ...

... j. Calculate the NPV of the following project using a ... he present value of your winnings at an 8% discount rate ... The assumption is that the bond has a $1,000 face ...