Bond and current stock price
Not what you're looking for?
Please show work
1. A newly issued corporate bond has 20 years to maturity. The bond has a coupon rate of 8 percent and pays interest semiannually. Also the bond is callable in 6 years at a call price equal to 115 percent of par value. The par value of the bonds is #1,000. The yield to maturity is 7 percent.
a. What is the bonds price today?
b. What is the bonds current yield?
c. What is the bonds yield to call?
d. What will be the bonds price one year from today?
2. Stewart Industries just paid a $2.40 per share dividend on its common stock yesterday (Do=$2.40) The dividend is expected to grow at a constant rate of 5 percent a year forever. The stocks beta is 1.2, the risk free rate of interest is 6 percent, and the rate of return on the market is 11 percent.
a. What is the company's current stock price?
b. What is the required rate of return on the stock?
c. What is the price of the stock at the end of year 3?
d. What should be the stock price today?
Purchase this Solution
Solution Summary
This solution is comprised of a detailed explanation to compute bonds price, current yield, yield to call, and stock price.
Solution Preview
1. A newly issued corporate bond has 20 years to maturity. The bond has a coupon rate of 8 percent and pays interest semiannually. Also the bond is callable in 6 years at a call price equal to 115 percent of par value. The par value of the bonds is $1,000. The yield to maturity is 7 percent.
a. What is the bonds price today?
We need to calculate how much the bonds have been issued by using the formula as follows: -
where B is the bond price
C is the coupon payment
r is the market interest rate
n is the period
Since, its remaining life is 20 years. You need to multiply the remaining life by 2 because the company pays interest semiannually.
Coupon payment is equal to $1,000 x 8% = 80/2 = $40
The market interest rate should also be divided by 2. = 7%/2 = 3.5%
The ...
Purchase this Solution
Free BrainMass Quizzes
Employee Orientation
Test your knowledge of employee orientation with this fun and informative quiz. This quiz is meant for beginner and advanced students as well as professionals already working in the HR field.
Learning Lean
This quiz will help you understand the basic concepts of Lean.
Accounting: Statement of Cash flows
This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.
Team Development Strategies
This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.
Marketing Research and Forecasting
The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.