Explore BrainMass

# Finance problem - bonds and stock prices

This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

A \$1,000 par value bond with a 10 year maturity date pays \$35 quarterly interest. Your required rate of return is 12% with quarterly compounding. How much should you pay for this bond?

The growth rate of Campbell Company is expected to be 4% for 1 year, 5% the next year, then 6 % for the following year and then the growth rate is expected to continue at 7%. The company paid a dividend of \$2 last year. The required rate of return is 10%. Calculate the current price of Campbell Company's common stock.

Bregg Company paid a dividend last year of \$2 and is expected to grow at a constant rate of 5%, and its dividend yield is 4%. Business risk for this company is average for the industry, but new products are driving expectations that its earnings and dividends will grow at a rate of 40% this year and 25% the following year. Following this period, growth is expected to be at 5%. What is the value per share of Bregg Company's stock?

https://brainmass.com/economics/risk-analysis/finance-problem-bonds-and-stock-prices-89616

#### Solution Preview

A \$1,000 par value bond with a 10 year maturity date pays \$35 quarterly interest. Your required rate of return is 12% with quarterly compounding. How much should you pay for this bond?

Value of bond = INT(PVIFAr,n) + PAR(PVIFr,n) where INT is the quarterly interest
r is the required rate of return per quarter
n is the period left until maturity

Value of bond = 35(PVIFA3%, 40) + 1,000(PVIF3%, 40)
= 35(23.1148) + 1,000(0.3066)
= 1,115.62

The growth rate of Campbell Company is expected to be 4% ...

#### Solution Summary

This solution is comprised of a detailed explanation and calculation to compute the price of the bonds and stocks.

\$2.19