Chapter 7 &8 HW

Antiques R Us is a mature manufacturing firm. The company just paid a dividend of $9, but management expects to reduce the payout by 5 percent per year indefinitely. If you require a return of 12 percent on this stock, what will you pay for a share today?

$50.29

After successfully completing your corporate finance class, you feel the next challenge ahead is to serve on the board of directors of Schenkel Enterprises. Unfortunately, you will be the only person voting for you. If the company has 650,000 shares outstanding, and the stock currently sells for $43, how much will it cost you to buy a seat if the company uses straight voting?

$13,975,043

Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next 8 years because the firm needs to plow back its earnings to fuel growth. The company will pay a dividend of $10 per share 9 years from today and will increase the dividend by 4 percent per year thereafter. If the required return on this stock is 8 percent, what is the current share price?

$135.07

You purchase a bond with an invoice price of $1,400. The bond has a coupon rate of 5.4 percent, and there are 5 months to the next semiannual coupon date. What is the clean price of the bond? Assume a par value of $1,000.

$1395.50

Suppose you know a company's stock currently sells for $70 per share and the required return on the stock is 8 percent. You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield. If it's the company's policy to always maintain a constant growth rate in its dividends, what is the current dividend per share?

$2.69

Lohn Corporation is expected to pay the following dividends over the next four years: $10, $8, $5, and $2. Afterward, the company pledges to maintain a constant 6 percent growth rate in dividends forever. If the required return on the stock is 15 percent, what is the current share price?

$32.64

Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 18 percent for the next 3 years, with the growth rate falling off to a constant 3 percent thereafter. If the required return is 9 percent and the company just paid a $2.00 dividend. what is the current share price?

$50.61

Burnett Corp. pays a constant $13 dividend on its stock. The company will maintain this dividend for the next 7 years and will then cease paying dividends forever. If the required return on this stock is 14 percent, what is the current share price?

$55.75

Hudson Corporation will pay a dividend of $4.20 per share next year. The company pledges to increase its dividend by 4.50 percent per year indefinitely. If you require a return of 10.70 percent on your investment, how much will you pay for the company's stock today?

$67.74

Weismann Co. issued 16-year bonds a year ago at a coupon rate of 7 percent. The bonds make semiannual payments and have a par value of $1,000. If the YTM on these bonds is 11 percent, what is the current bond price?

$709.33

Both Bond Sam and Bond Dave have 8 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has 5 years to maturity, whereas Bond Dave has 12 years to maturity. If interest rates suddenly rise by 3 percent, what is the percentage change in the price of Bond Sam?

-11.31%

Both Bond Sam and Bond Dave have 8 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has 5 years to maturity, whereas Bond Dave has 12 years to maturity. If interest rates suddenly rise by 3 percent, what is the percentage change in the price of Bond Dave?

-19.73%

West Corp. issued 13-year bonds 2 years ago at a coupon rate of 10.4 percent. The bonds make semiannual payments. If these bonds currently sell for 102 percent of par value, what is the YTM?

10.09%

McConnell Corporation has bonds on the market with 10 years to maturity, a YTM of 10.0 percent, a par value of $1,000, and a current price of $1,136.50. The bonds make semiannual payments. What must the coupon rate be on these bonds?

12.19%

You purchase a bond with an invoice price of $1,250. The bond has a coupon rate of 8.2 percent, and there are 4 months to the next semiannual coupon date. What is the clean price of the bond? Assume a par value of $1,000.

1236.33

Both Bond Sam and Bond Dave have 8 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has 5 years to maturity, whereas Bond Dave has 12 years to maturity. If rates were to suddenly fall by 3 percent instead, what would the percentage change in the price of Bond Sam be then?

13.13%

E-Eyes.com just issued some new preferred stock. The issue will pay an annual dividend of $6 in perpetuity, beginning 11 years from now. If the market requires a 12 percent return on this investment, how much does a share of preferred stock cost today?

16.10

Both Bond Sam and Bond Dave have 8 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has 5 years to maturity, whereas Bond Dave has 12 years to maturity. If rates were to suddenly fall by 3 percent instead, what would the percentage change in the price of Bond Dave be then?

26.83%

Gabriele Enterprises has bonds on the market making annual payments, with 10 years to maturity, a par value of $1,000, and selling for $800. At this price, the bonds yield 7.7 percent. What must the coupon rate be on the bonds?

4.76%

A7X Corp. just paid a dividend of $1.30 per share. The dividends are expected to grow at 25 percent for the next 7 years and then level off to a growth rate of 8 percent indefinitely. If the required return is 14 percent, what is the price of the stock today?

57.97

The next dividend payment by Savitz, Inc., will be $4.35 per share. The dividends are anticipated to maintain a growth rate of 2 percent forever. If the stock currently sells for $56 per share, what is the required return?

9.77%

Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 7 years to maturity, and a coupon rate of 7 percent paid annuallly. If the yield to maturity is 9 percent, what is the current price of the bond?

€899.34

After successfully completing your corporate finance class, you feel the next challenge ahead is to serve on the board of directors of Schenkel Enterprises. Unfortunately, you will be the only person voting for you. Schenkel has 650,000 shares outstanding, and the stock currently sells for $43. Assume the company uses cumulative voting and there are four seats in the current election. How much will it cost you to buy a seat?

$5,590,043

You purchase a bond with a coupon rate of 6.2 percent and a clean price of $1,030. If the next semiannual coupon payment is due in five months, what is the invoice price? Assume a par value of $1,000.

1035.17

Bond J has a coupon rate of 4 percent. Bond K has a coupon rate of 10 percent. Both bonds have 7 years to maturity, make semiannual payments, and have a YTM of 8 percent. If interest rates suddenly rise by 3 percent, what is the percentage price change of Bond J? If interest rates suddenly rise by 3 percent, what is the percentage price change of Bond K? If interest rates suddenly fall by 3 percent, what is the percentage price change of Bond J? If interest rates suddenly fall by 3 percent, what is the percentage price change of Bond K?

Bond J: -15.77% Bond k: -13.89% Bond J: 19.37% Bond K: 16.88%

Both Bond Sam and Bond Dave have 7.3 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has three years to maturity, whereas Bond Dave has 20 years to maturity. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of Bond Sam and Bond Dave?

Bond Sam: -5.13% Bond Dave: -18.01%

Both Bond Sam and Bond Dave have 7.3 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has three years to maturity, whereas Bond Dave has 20 years to maturity. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of Bond Sam and Bond Dave? If rates were to suddenly fall by 2 percent instead, what would be the percentage change in the price of Bond Sam and Bond Dave?

Bond Sam: 5.48% Bond Dave: 24.48%

You purchase a bond with an invoice price of $948. The bond has a coupon rate of 5.9 percent, and there are four months to the next semiannual coupon date. Assume a par value of $1,000. What is the clean price of the bond?

Clean Price $938.17

Suppose you buy a 7 percent coupon, 20-year bond today when it's first issued. If interest rates suddenly rise to 15 percent, what happens to the value of your bond?

The price of the bond will fall

The Jackson-Timberlake Wardrobe Co. just paid a dividend of $1.44 per share on its stock. The dividends are expected to grow at a constant rate of 4 percent per year indefinitely. a. If investors require a return of 9 percent on the company's stock, what is the current price? b. What will the price be in 12 years?

a) $29.95 b)$47.95

Both Bond Sam and Bond Dave have 9 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has 3 years to maturity, whereas Bond Dave has 20 years to maturity. a) If interest rates suddenly rise by 2 percent, what is the percentage change in the price of Bond Sam? b) If interest rates suddenly rise by 2 percent, what is the percentage change in the price of Bond Dave? c) If rates were to suddenly fall by 2 percent instead, what would the percentage change in the price of Bond Sam be then? d) If rates were to suddenly fall by 2 percent instead, what would the percentage change in the price of Bond Dave be then?

a) -5% b)-16.05% c) 5.33% d) 21.36%

Is the yield to maturity on a bond the same thing as the required return? Is YTM the same thing as the coupon rate? Suppose today a 10 percent coupon bond sells at par. Two years from now, the required return on the same bond is 8 percent. a) What is the coupon rate on the bond? b) What is the YTM on the bond?

a) Coupon rate 10% b) YTM 8%

Workman Software has 12.0 percent coupon bonds on the market with 17 years to maturity. The bonds make semiannual payments and currently sell for 110.9 percent of par. a. What is the current yield on the bonds? b. The YTM? c. The effective annual yield?

a)10.82% b)10.60% c)10.88%