Problem - Bond and Stock Basics
a. Find the current price of 30 day commercial paper issued with a yield of 1.25% and with face value of $100,000.
b. Domenic purchases a newly issued 4 year bond priced at $1015 with par value of $1000. It pays $100 interest yearly. What is the coupon rate, the current yield and the yield to maturity?
c. Domenic also purchases a share of General Electric stock for $14 at the beginning of the year. During the course of the year he receives dividends totaling $1.15. He sells the stock to Elliana for $16.75 at the end of the year. What is his holding period return?
d. Elliana buys the stock at $16.75 from Domenic. Using the current dividend (now time = 0) of $1.15 and a predicted growth rate of 3%, what is GE's required rate of return, r?
e. Instead, just as Elliana purchases the stock, GE announces that it will be distributing all of its earnings in the form of a dividend (i.e. retaining no earnings). The dividend announced is $2.00. What is the price of the stock now (assume the required rate of return did not change from part c)?