1. Joe Bob is issuing a 20 year, 8% coupon bond. The market yield on this type of bond is 6%. Find a fair price.
2. If Joe Bob's bond immediately falls to a price 980, what is the yield?
3. Last year Timco paid a 5 per share dividend. The beta is 1.7, the market is expected to earn 11%, and the risk free rate is 2%. If dividends remain at 5 per year forever, what is a fair price?
4. What if Timco's dividends grow at 6% per year forever?
5. Find the dividend yield and capital gains yield for the stock in number 4.
6. What if Timco's dividends grow at 6% for one year, than at 10% forever after that?
7. Stevie Ray can generate 3 in Eps per year forever. The fair return is 14%. They can retain 30% of earnings and invest in a project that will earn 12%. Find the value of assets in place. Find the value of the growth opportunity. Should Stevie Ray buy it?
8. The spot price is 100. The exercise price on a one year call is 95. The standard deviation of the spot is 20%. The risk free rate is 4%. Find the intrinsic value, time value and premium for this call.
9. The spot price is 100. The exercise price on a one year call is 102. The risk free rate is 4%. Find the price of the call if there is equal probability that stock price will grow to 110 or fall to 95.
10. Tomco uses a capital structure that is 60% debt. The interest rate on this debt is 6%. The tax rate is 40%. If Tomco has a beta of 1.2 and the market is expected to earn 10% and the risk free rate is 3%, what is Tomco's WACC?