Pr DUE AT THE BEGINNING OF CLASS THIS HOMEWORK SET CONSISTS OF 10 PROBLEMS ON 2

Question

Pr DUE AT THE BEGINNING OF CLASS THIS HOMEWORK SET CONSISTS OF 10 PROBLEMS ON 2 PAGES SHOW YOUR WORK AND SOLUTIONS FOR FULL CREDIT Homework Set 3: Bonds and Stocks Name De Problem 1 If a stock's P/E ratio is 12 at a time when earnings are $3 per year, what is the stock's current price? Problem 2 What should be the rate is zero and the discount rate is 8%? price for a common stock paying $6.00 annually in dividends i the growth Problem 3 What price was quoted to an investor who paid $982.50 for a $1,000 par value bond? Problem 4 What is the goal of the firm? Problem 5 If the dividend yield for year one is expected to be 8% based on the current the year four dividend be if dividends grow at a constant 6%? price of$25, what will

Explanation / Answer

Answer to Problem 1:

Current Price = P/E Ratio * Earnings per share
Current Price = 12 * $3.00
Current Price = $36.00

Answer to Problem 2:

Price of Stock = Annual Dividend / Discount Rate
Price of Stock = $6.00 / 0.08
Price of Stock = $75.00

Answer to Problem 3:

Price of Bond = Quoted price * Par Value
$982.50 = Quoted price * $1,000
Quoted price = 98.25

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