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If the present value of the interest payments on a bond is $320 and the present value of the par value to be paid at maturity is $900, the total value of the bond must be Blank______

$1,220 $320 + 900 = $1,220.

What is the value of a zero-coupon bond that matures in 15 years if it promises to pay $5,000 at maturity, assuming an interest rate of 7.5 percent compounded annually?

$1,689.83 $5,000/(1.075)15 = $1,689.83.

What is the value of a bond if the present value of interest cash flows is $200 and the present value of the par value to be received when the bond matures is $750?

$950 Total value = $200 + 750 = $950.

O'Connor Corporation will pay an annual dividend of $1.00 next year. The dividend will increase by 12 percent per year for the following two years before growing at 4 percent indefinitely thereafter. If the required rate of return is 10 percent, what is the stock's current value?

$19.11 P0 = $1.00/1.10 + $1.12/1.102 + $1.122/1.103 + {[$1.122(1.04)]/(.10 − .04)}/1.103 P0 = $19.11

You want a seat on the board of directors of Zeph, Incorporated. The company has 220,000 shares of stock outstanding and the stock sells for $69 per share. There are currently 5 seats up for election. If the company uses cumulative voting, how much will it cost you to guarantee that you will be elected to the board?

$2,530,069 Shares necessary = {[1/(1 + 5)] × 220,000} + 1 = 36,668 shares Cost = 36,668($69) = $2,530,069

A bond has a par value of $1,000, a current yield of 6.54 percent, and semiannual coupon payments. The bond is quoted at 96.49. What is the amount of each coupon payment?

$31.55 Coupon payment = [.0654 × (.9649 × $1,000)/2] = $31.55

What is the present value of $1,000 to be received in 10 years if the interest rate is 12 percent, compounded semiannually?

$311.80 $1,000/[1 + (0.12/2)]10 × 2 = $311.80.

You want a seat on the board of directors of Zeph, Incorporated. The company has 270,000 shares of stock outstanding and the stock sells for $73 per share. There are currently 3 seats up for election. If the company uses cumulative voting, how much will it cost you to guarantee that you will be elected to the board?

$4,927,573 Shares necessary = {[1/(1 + 3)] × 270,000} + 1 = 67,501 sharesCost = 67,501($73) = $4,927,573

Stana, Incorporated, has preferred stock outstanding that sells for $102.16 per share. If the required return is 4.08 percent, what is the annual dividend?

$4.17 D = $102.16 × .0408 = $4.17

The Ronnie Company has sales per share of $25.52. If the PS ratio is 1.62 times, what is the stock price?

$41.34 P = $25.52(1.62) = $41.34

What is the present value of the annual interest payments on a 20-year, $1,000 par value bond with a 5 percent coupon paid annually, if the yield on similar bonds is 10 percent?

$425.68. PV = (0.05 × $1,000) × (1 − 1/1.1020)/0.10 = $425.68.

If you invest in a $1,000 corporate bond that has a 9 percent coupon and makes semi-annual payments, you can expect to receive Blank______

$45 $1,000 (0.09/2) = $45.

Sankey Company has earnings per share of $3.45. The benchmark PE is 17.8 times. What stock price would you consider appropriate?

$61.41 3.45*17.8=61.41

What is the present value of the annual interest payments on a 10-year, $1,000 par value bond with a coupon rate of 10 percent paid annually, if the yield on similar bonds is 9 percent?

$641.77 PV = (0.10 × $1,000) × (1 − 1/1.0910)/0.09 = $641.77.

Railway Cabooses just paid its annual dividend of $1.90 per share. The company has been reducing the dividends by 11.4 percent each year. How much are you willing to pay today to purchase stock in this company if your required rate of return is 12 percent?

$7.!19 P0 = [$1.90 × [1 + (- 0.114)]] / [0.12 - (- 0.114)]

Kindzi Company has preferred stock outstanding that is expected to pay an annual dividend of $3.34 every year in perpetuity. If the required return is 3.59 percent, what is the current stock price?

$93.04 3.34/0.0359=93.04

A 12-year, semiannual coupon bond sells for $951.07. The bond has a par value of $1,000 and a yield to maturity of 6.48 percent. What is the bond's coupon rate?

$951.07 = C{[1 − 1/(1 + .0648/2)24]/(.0648/2)} + $1,000/(1 + .0648/2)24 C = $29.44

What is the coupon rate on a bond that has a par value of $1,000, a market value of $1,100, and a coupon interest payment of $100 per year?

10% Coupon rate = $100/$1,000 = 10%.

Shares of common stock of the Samson Company offer an expected total return of 16.20 percent. The dividend is increasing at a constant 5.60 percent per year. The dividend yield must be:

10.60 0.1620-0.0560=0.106

What is the current yield on a $1,000 par value bond that sells for $900 if the coupon rate is 10 percent?

11.11% (0.10 × $1,000)/$900 = 11.11%.

Leslie's Unique Clothing Stores offers a common stock that pays an annual dividend of $2.40 a share. The company has promised to maintain a constant dividend. How much are you willing to pay for one share of this stock if you want to earn a return of 15.70 percent on your equity investments?

15.29% 2.40/0.1570

A stock had a total return of 19.25 percent last year. The dividend amount was $.65 per share which equated to a dividend yield of 3.1 percent. What is the dividend growth rate?

16.15% 0.1925-0.031=0.1615

A 15-year corporate bond with a face value of $1,000 matures in 5 years and has an annual coupon rate of 4.5 percent. The current price of the bond is $1,069.14 and interest is paid semiannually. What is the yield to maturity?

3.00% $1,069.14 = (.45/2)($1,000){[1 − 1/(1 + YTM/2)5(2)]/(YTM/2)} + $1,000/(1 + YTM/2)5(2)YTM = .0300, or 3.00%

Broke Benjamin Company has a bond outstanding that makes semiannual payments with a coupon rate of 5.8 percent. The bond sells for $974.17 and matures in 14 years. The par value is $1,000. What is the YTM of the bond?

6.08% $974.17 = $29.00{[1 − 1/(1 + r)28]/r} + $1,000/(1 + r)28r = .0304, or 3.04% YTM = 3.04% × 2 = 6.08%

What is the effective annual rate on a bond with a yield to maturity of 6 percent that pays semiannual interest?

6.09% [1 + (0.06/2)]2 − 1 = 6.09%.

What is the effective annual rate for a bond with a 7 percent yield to maturity that makes semiannual interest payments? (Hint: 7 percent annually is 3.5 percent per six-month period.)

7.12% Effective annual rate = [1 + (0.07/2)]2 − 1 = 7.12%.

A bond with 16 years to maturity and a semiannual coupon rate of 6.10 percent has a current yield of 5.71 percent. The bond's par value is $2,000. What is the bond's price?

Coupon payment = .0610 × $2,000 = $122.00 Price = $122.00/.0571 = $2,136.60

What is a bond's current yield?

Current yield = Annual coupon payment/Current price

What are the cash flows involved in the purchase of a 5-year zero coupon bond that has a par value of $1,000 if the current price is $800? Assume the market rate of interest is 5 percent.

Pay $800 today and receive $1,000 at the end of 5 years.