Please answer 1-4 or none of them at all. 1.A bank stock is currently paying $2.
ID: 2788190 • Letter: P
Question
Please answer 1-4 or none of them at all.
1.A bank stock is currently paying $2.53 in dividends per year. The bank grows slowly, at about 1% per year. Given a required rate of return of 12% per year, what is the current stock price?
2. A restaurant chain company named Fatso's Burgers is currently paying out $3.39 per year in dividends and is forecast to grow at 6% per year. Based on a 12% required rate of return, what is the stock price?
3. A bond has a face value of $1,000. The bond matures in 10 years. It has a coupon rate of 8% and pays interest annually. The yield is 9%. What is the price of the bond?
4. A bond has a face (par) value of 10,000. It matures in 20 years. The bond has an annual coupon of 9%. Based on a market rate (yield) of 7%, what is the current price of the bond?
Explanation / Answer
1)
price = dividend next year /(required rate of return - growth rate)
= 2.53 * (1+1%)/(12%-1%)
= 23.23
2)
price = 3.39 * (1+6%)/(12%-6%)
= 59.89
3)
price of bond = coupon payment * [1-(1+i)^-n ]/i + facevalue/(1+i)^n
price = 80 * [1-(1+9%)^-10]/9% + 1000/(1+9%)^10
= 935.82
4)
price of bond = coupon payment * [1-(1+i)^-n ]/i + facevalue/(1+i)^n
= 900 * [1-(1+7%)^-20]/7% + 10000/(1+7%)^20
= 12118.80
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