You must show your work step by step, If excel is used please show formulas Prob
ID: 2784197 • Letter: Y
Question
You must show your work step by step, If excel is used please show formulas
Problem 1
M.G.Buffon Company's last dividend was $1.55. The dividend growth rate is expected to be constant at 1.5% for 2 years, after which dividends are expected to grow at a rate of 8.0% forever. What is the best estimate of the current stock price? Assume that the firm's beta coefficient is 1.1429, rM is 11 percent, and rRF is 4 percent.
B
A. Consigli Inc.'s stock has a required rate of return of 11.50%, and it sells for $35.00 per share. Goode's dividend is expected to grow at a constant rate of 7.00%. What was the last dividend paid by the company?
C
M. Perin Industries has a bond outstanding with 15 years to maturity, an 8.25% coupon, semiannual payments, and a $1,000 par value. The bond has a 6.50% yield to maturity, but it can be called in 5 years at a price of $1,120. What is the bond’s yield to call?
D
Consider the following information and then calculate the required rate of return for the De Rossi Hedge Fund, which holds 4 stocks. The market’s required rate of return is 12.25%, the risk-free rate is 5.00%, and the Fund’s assets are as follows:
Stock Investment Beta
A $ 200,000 1.50
B 300,000 0.50
C 500,000 1.25
D $1,000,000 0.75
Explanation / Answer
cost of equity = 4% + 7% *1.1429 = 12.00%
Price = 37.05
B
35 = D*1.07/0.045
D = 1.472
C
N = 30
FV = 1000
PMT = 41.25
rate = 3.25%
use PV function in Excel
price of bond = 1166.09
PV = -1166.09 FV = 1120 N = 10 PMT = 41.25
use rate function in Excel and multiply by 2
yield to call = 6.39%
D.
beta = 0.1*1.5 + 0.15*-0.5 + 0.25*1.25 + 0.5*0.75 = 0.7625
required return = 5 + 0.7625*(12.25 - 5) = 10.53%
12.00% Cash flows Year Discounted CF - 0 0.00 1.57 1 1.40 1.60 2 1.27 43.11 2 34.37Related Questions
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