Question 1: Suppose a company is going to issue new bond which has an 6% coupon, 30-year maturity with par value of $1000 paying 60 semiannual coupon payments of $30 each. Assume that the market interest rate for this bond is 6%
A) What is the price of the bond?
B) What would be the price of the bond if the market interest rate were to rise to 10%?
Question 2: Michael Williams Jewelers recently issued a $1,000 face, 20-year zero-coupon bond for $225. The initial public offering sold in January 2006. What is the yield to maturity on this bond at issuance?
Question 3: After reading today’s copy of The Wall Street Journal, you’ve observed that the nominal return on a one year Treasury Bill is 4.5%. Assuming an inflation rate of 3.3%, what is the real return on this investment? (Format to 4 decimal places).
Question 4: As you read the bond pages of The Wall Street Journal, you notice a bond selling for $340 which pays no interest and matures to a value of $1000 eight years from today. What return would you earn if you bought this bond today and held it to maturity?
Question 5: Kansas Electric Company is going to issue new bond which has an 6% coupon, 30-year maturity with par value of $1000 paying 60 semiannual coupon payments of $30 each. Assume that the market interest rate for this bond is 8%. What would be the price of the bond?
Question 6: You are contemplating buying stock. The current dividend is $3.50 per year, and the expected dividend growth rate is a constant 4%. You require a rate of return of 9% on this investment. What would you expect to be the price of this stock today?
Question 7: PNC Bank has just issued some new preferred stock. The issue will pay a $17 annual dividend in perpetuity beginning four years from now. If the market requires a 14% return on this investment, how much does a share of stock cost today?
Question 8: Southern Company is a large Atlanta utility. Its cash dividend for the current year is estimated to be $1.30/share. Dividends are expected to grow at a 5% rate. If investors require a rate of return of 15% on the stock. What price will they be willing to pay for each share?
Question 9: Records Inc. is a firm that archives computer records of numerous business firms to save them computer space and yet allow easy retrieval. The firm has 1 million common shares outstanding. The growth rate for Records Inc. is 6 percent and analysts expect it to remain constant for the foreseeable future. The current dividend paid was $0.80. Investors require a 14 percent rate of return. What is the current value or price of Record’s stock?
Question 10: Pendulum Mining Company’s ore reserves are being depleted, so its sales are falling. Also, its pit is getting deeper each year, so its costs are increasing. As a result, the company’s earnings and dividends are declining at the constant rate of 10 percent per year. If the last dividend paid was $6 and investors’ required rate of return was 15 percent, what is the value of Pendulum Mining’s stock?
Question 11: Warwick Investments common stock is currently selling for $66.25 per share. You expect the next dividend to be $5.30 per share. If the firm has a dividend growth rate of 4%, what is its cost of equity?