1.Bonds issued by Blue Sky Airlines have a face value of $1,000 and currently se

Question

1.Bonds issued by Blue Sky Airlines have a face value of $1,000 and currently sell for $850. The annual coupon payments are $80. If the bonds have 10 years until maturity , what is the approximate YTM of the bonds?

2. The preferred stock of Bean Coffee pays an annual dividend of $5.60. It has a required rate of return of eight percent. What is the price of the preferred stock?

3. Intelligence Research, Inc. will pay a common stock dividend of $1.60 at the end of the year. required rate of return by common stockholders is 13 percent. The firm has a constant gowth rate of seven percent. What is the current price of the stock?

Explanation / Answer

PV=850 FV=1000 PMT=80 N=10 4.25% P of preferred stock = D/R 5.6/.08=70 P=Do*(1+g)/(r-g) P=1.6*(1+.07)/(.13-.07)=28.5333

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