Pricing of Stocks and Bonds
Company ABC is expected to pay the following dividends over the next three years: $10, $11, and $12. Afterwards, the company pledges to maintain a constant 4 percent growth rate in dividends per year forever. If the appropriate rate of return on the stock is 10 percent, compounded quarterly, what is the current share price?
What is the dividend yield of ABC stock? What is the expected capital gains yield?
Company XYZ is expected to pay the following dividends over the next two years: $15 and $16. Afterwards, the company will pay quarterly dividends, with $4.2 as the first quarterly dividend. The dividend will grow at a quarterly rate of 1 percent forever. If the appropriate rate of return on the stock is 10 percent, compounded quarterly, what is the current share price?
Company ABC has two different bonds currently outstanding. Bond M has a face value of $20,000 and matures in 20 years. The bond makes no payments for the first six years, then pays $800 every six months over the subsequent eight years, and finally pays $1,000 every six months over the last six years. Bond N also has a face value of $20,000 and a maturity of 20 years; it makes no coupon payment over the life of the bond and currently sells for 25% of face value. What is the current price of Bond M?