Current yield on the bond calculation


Problem 1. Consider a $1,000 par value bond with a 7% annual coupon. The bond pays interest annually. There are 9 years remaining until maturity. What is the current yield on the bond assuming that the required return on the bond is 10%?

Problem 2. Assume that you plan to buy a share of XYZ stock today and to hold it for 2 years. Your expectations are that you will not receive a dividend at the end of Year 1, but that you will receive a dividend of $9.25 at the end of Year 2. In addition, you expect to sell the stock for $150 at the end of Year 2. If your expected rate of return is 16%, how much should you be willing to pay for this stock today?

Problem 3. Womack Toy Company's stock is currently trading at $25 per share. The stock's dividend is projected to increase at a constant rate of 7% per year. The required rate of return on the stock is 10%. What is the expected price of the stock 4 years from today?

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Finance Basics: Current yield on the bond calculation
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