Problem
1. Innovation Now common stock is currently selling for $42.00 a share. The stock just paid a dividend of $3.00 per share at the end of last year. Dividends are expected to grow at a rate of 6% annually. What is the expected rate of return of the common stock? Submit your answer as a percentage and round to two decimal places.
2. Analysts predict that over the next year, Sammy's, Inc.'s common stock has a 25% chance of returning 7%, a 40% chance of returning 15%, and a 35% chance of returning 27%. What is the expected rate of return on Sammy's Inc.'s common stock? Submit your answer as a percentage and round to two decimal places.
3. Analysts predict that over the next year, Sammy's, Inc.'s common stock has a 25% chance of returning 7%, a 40% chance of returning 15%, and a 35% chance of returning 27%. What is the standard deviation of returns on Sammy's, Inc.'s common stock? Submit your answer as a percentage and round to two decimal places.
4. Mila & Bros Inc. issued $1,000 par value corporate bonds on January 1, 2021 and mature on January 1, 2051. The bonds have a % 6.75 coupon rate paid semiannually. Bonds are currently selling for $935. Compute the bond's yield to maturity on January 1, 2025? Submit your answer as a percentage rounded to two decimal places. (Hint: how many years are there to maturity?)
5. Consider a 27-year bond with $1,000 face value that pays a 8.00% coupon on an annual basis and has a yield-to-maturity of 7.00%. What is the approximate percentage change in the price of bond if interest rates in the economy are expected to increase by 2.20% over the next year? Submit your answer as a percentage and round to two decimal places. (Hint: What is the expected price of the bond before and after the change in interest rates?)