Finanace questions
Suppose you purchase a 30-year, zero-coupon bond with a yield to maturity of 6.0 %. You hold the bond for five years before selling it. a. If the bond's yield to maturity is 6.0 % when you sell it, what is the annualized rate of return of your investment? b. If the bond's yield to maturity is 7.0 % when you sell it, what is the annualized rate of return of your investment? c. If the bond's yield to maturity is 5.0 % when you sell it, what is the annualized rate of return of your investment? d. Even if a bond has no chance of default, is your investment risk free if you plan to sell it before it matures? Explain.
. If the bond's yield to maturity is 6.0 % when you sell it, what is the annualized rate of return of your investment? The annualized rate of return of your investment is 6%. (Round to two decimal places.) b. If the bond's yield to maturity is 7.0 % when you sell it, what is the annualized rate of return of your investment? The annualized rate of return of your investment is 1.13%. (Round to two decimal places.) c. If the bond's yield to maturity is 5.0 % when you sell it, what is the annualized rate of return of your investment? Then the annualized rate of return of your investment is 11.15%. (Round to two decimal places.) Even if a bond has no chance of default, is your investment risk free if you plan to sell it before it matures? Explain. (Select the best choice below.)- Even without default, if you sell prior to maturity, you are exposed to risk that the YTM may change.
Maturity (years)/Price (per $100 face value) 1 /95.51 2/91.05 3/86.38 4/81.65 5/76.51
Compute the yield to maturity for each bond. The yield on the 1-year bond is 4.70%. (Round to two decimal places.) The yield on the 2-year bond is 4.80%. (Round to two decimal places.) The yield on the 3-year bond is 5.00%. (Round to two decimal places.) The yield on the 4-year bond is 5.20%. (Round to two decimal places.) The yield on the 5-year bond is 5.50%. (Round to two decimal places.)
Suppose a seven-year, $ 1000 bond with an 8.0 % coupon rate and semiannual coupons is trading with a yield to maturity of 6.75 %. a. Is this bond currently trading at a discount, at par, or at a premium? Explain. b. If the yield to maturity of the bond rises to 7.00 % (APR with semiannual compounding), what price will the bond trade for?
Is this bond currently trading at a discount, at par, or at a premium? Explain. (Select the best choice below.)- Because the yield to maturity is less than the coupon rate, the bond is trading at a premium. If the yield to maturity of the bond rises to 7.00 % (APR with semiannual compounding), what price will the bond trade for? The new price of the bond is $ 1054.6. (Round to the nearest cent.)
Halliford Corporation expects to have earnings this coming year of $ 3.000 per share. Halliford plans to retain all of its earnings for the next two years. Then, for the subsequent two years, the firm will retain 50 % of its earnings. It will retain 20 % of its earnings from that point onward. Each year, retained earnings will be invested in new projects with an expected return of 25.0 % per year. Any earnings that are not retained will be paid out as dividends. Assume Halliford's share count remains constant and all earnings growth comes from the investment of retained earnings. If Halliford's equity cost of capital is 10.0 %, what price would you estimate for Halliford stock?
The stock price will be $ 68.39. (Round to the nearest cent.)
Assume Gillette Corporation will pay an annual dividend of $ 0.65 one year from now. Analysts expect this dividend to grow at 12.0 % per year thereafter until the 5th year. Thereafter, growth will level off at 2.0 % per year. According to the dividend-discount model, what is the value of a share of Gillette stock if the firm's equity cost of capital is 8.0 %?
The value of Gillette's stock is $ 15.08. (Round to the nearest cent.)
Assume Highline Company has just paid an annual dividend of $ 0.96. Analysts are predicting an 11.0 % per year growth rate in earnings over the next five years. After then, Highline's earnings are expected to grow at the current industry average of 5.2 % per year. If Highline's equity cost of capital is 8.5 % per year and its dividend payout ratio remains constant, for what price does the dividend-discount model predict Highline stock should sell?
The value of Highline's stock is $ 39.44. (Round to the nearest cent.)
Dorpac Corporation has a dividend yield of 1.5 %. Its equity cost of capital is 8.0 %, and its dividends are expected to grow at a constant rate. a. What is the expected growth rate of Dorpac's dividends? b. What is the expected growth rate of Dorpac's share price?
What is the expected growth rate of Dorpac's dividends? The growth rate will be 6.5%. (Round to one decimal place.) b. What is the expected growth rate of Dorpac's share price? What is the expected growth rate of Dorpac's share price? (Select the best choice below.) - With constant dividend growth, the share price is also expected to grow at rate g equals 6.5 %.
Assume that a bond will make payments every six months as shown on the following timeline (using six-month periods): Period012nothing1920 Cash Flowsnothing$ 20.00$ 20.00nothing$ 20.00$ 20.00 plus $ 1,000 a. What is the maturity of the bond (in years)? b. What is the coupon rate (as a percentage)?
What is the maturity of the bond (in years)? The maturity is 10 years. (Round to the nearest integer.) b. What is the coupon rate (as a percentage)? The coupon rate is 4%. (Round to two decimal places.) c. What is the face value? The face value is $ 1000. (Round to the nearest d
Andrew Industries is contemplating issuing a 30-year bond with a coupon rate of 7.00 % (annual coupon payments) and a face value of $ 1 comma 000. Andrew believes it can get a rating of A from Standard & Poor's. However, due to recent financial difficulties at the company, Standard & Poor's is warning that it may downgrade Andrew Industries' bonds to BBB. Yields on A-rated, long-term bonds are currently 6.50 %, and yields on BBB-rated bonds are 6.90 %. a. What is the price of the bond if Andrew Industries maintains the A rating for the bond issue? b. What will be the price of the bond if it is downgraded?
What is the price of the bond if Andrew Industries maintains the A rating for the bond issue? If Andrew maintains the A rating for the bond issue, the price of the bond is $ 1065.29. (Round to the nearest cent.) b. What will be the price of the bond if it is downgraded? If it is downgraded, the new bond's price will be $ 1012.53. (Round to the nearest cent.)
Security Yield (%) Treasury 3.10 AAA corporate 3.20 BBB corporate 4.20 B corporate 4.90 What is the price (expressed as a percentage of the face value) of a one-year, zero-coupon corporate bond with a AAA rating? b. What is the credit spread on AAA-rated corporate bonds? c. What is the credit spread on B-rated corporate bonds? d. How does the credit spread change with the bond rating? Why?
What is the price (expressed as a percentage of the face value) of a one-year, zero-coupon corporate bond with a AAA rating? The price of this bond will be 96.899%. (Round to three decimal places.) b. What is the credit spread on AAA-rated corporate bonds? The credit spread on AAA-rated corporate bonds is . 10%. (Round to two decimal places.) c. What is the credit spread on B-rated corporate bonds? How does the credit spread change with the bond rating? Why? (Select the best choice below.) -The credit spread increases as the bond rating falls because lower-rated bonds are riskier.
Suppose a ten-year, $ 1 000 bond with an 8.0 % coupon rate and semiannual coupons is trading for $ 1 034.74. a. What is the bond's yield to maturity (expressed as an APR with semiannual compounding)? b. If the bond's yield to maturity changes to 9.0 % APR, what will be the bond's price?
What is the bond's yield to maturity (expressed as an APR with semiannual compounding)? The bond's yield to maturity is 7.50%. (Round to two decimal places.) b. If the bond's yield to maturity changes to 9.0 % APR, what will be the bond's price? The new price for the bond is $ 934.96. (Round to the nearest cent.)
Your firm has taken out a $ 500 ,000 loan with 9.0 % APR (compounded monthly) for some commercial property. As is common in commercial real estate, the loan is a 5-year loan based on a 15-year amortization. This means that your loan payments will be calculated as if you will take 15 years to pay off the loan, but you actually must do so in 5 years. To do this, you will make 59 equal payments based on the 15-year amortization schedule and then make a final 60th payment to pay the remaining balance. (Note: Be careful not to round any intermediate steps less than six decimal places.) a. What will your monthly payments be? b. What will your final payment be?
What will your monthly payments be? The monthly payments will be $ 5071.33. (Round to the nearest cent.) b. What will your final payment be? The final payment will be $ 405411.15. (Round to the nearest cent.)
DFB, Inc. expects earnings next year of $ 5.00 per share, and it plans to pay a $ 3.00 dividend to shareholders (assume that is one year from now). DFB will retain $ 2.00 per share of its earnings to reinvest in new projects that have an expected return of 15.0 % per year. Suppose DFB will maintain the same dividend payout rate, retention rate, and return on new investments in the future and will not change its number of outstanding shares. Assume next dividend is due in one year. a. What growth rate of earnings would you forecast for DFB? b. If DFB's equity cost of capital is 12.0 %, what price would you estimate for DFB stock? c. Suppose instead that DFB paid a dividend of $ 4.00 per share at the end of this year and retained only $ 1.00 per share in earnings. That is, it chose to pay a higher dividend instead of reinvesting in as many new projects. If DFB maintains this higher payout rate in the future, what stock price would you estimate for the firm now? Should DFB raise its dividend?
a. What growth rate of earnings would you forecast for DFB? DFB's growth rate of earnings is 6%. (Round to one decimal place.) b. If DFB's equity cost of capital is 12.0 %, what price would you estimate for DFB stock? If DFB's equity cost of capital is 12.0 %, then DFB's stock price will be $ 50. (Round to the nearest cent.) c. Suppose instead that DFB paid a dividend of $ 4.00 per share at the end of this year and retained only $ 1.00 per share in earnings. That is, it chose to pay a higher dividend instead of reinvesting in as many new projects. If DFB maintains this higher payout rate in the future, what stock price would you estimate for the firm now? If DFB paid a dividend of $ 4.00 per share next year and retained only $ 1.00 per share in earnings, then DFB's stock price would be $ 44.44. (Round to the nearest cent.) Should DFB raise its dividend? (Select the best choice below.) No, DFB should not raise dividends because the projects are positive NPV.
A BBB-rated corporate bond has a yield to maturity of 8.2 %. A U.S. treasury security has a yield to maturity of 6.5 %. These yields are quoted as APRs with semi-annual compounding. Both bonds pay semiannual coupons at a rate of 7.0 % and have five years to maturity. a. What is the price (expressed as a percentage of the face value) of the treasury bond? b. What is the price (expressed as a percentage of the face value) of the BBB-rated corporate bond? c. What is the credit spread on the BBB bonds?
a. What is the price (expressed as a percentage of the face value) of the treasury bond? The price of the treasury bond as a percentage of face value is 102.106%. (Round to three decimal places.) b. What is the price (expressed as a percentage of the face value) of the BBB-rated corporate bond? The price of the BBB-rated corporate bond as a percentage of face value is 95.158%. (Round to three decimal places.) c. What is the credit spread on the BBB bonds? The credit spread on the BBB bonds is 1.70%. (Round to two decimal places.)
Anle Corporation has a current stock price of $ 20.00 and is expected to pay a dividend of $ 1.00 in one year. Its expected stock price right after paying that dividend is $ 22.00. a. What is Anle's equity cost of capital? b. How much of Anle's equity cost of capital is expected to be satisfied by dividend yield and how much by capital gain?
a. What is Anle's equity cost of capital? Anle's equity cost of capital is 15%. (Round to two decimal places.) b. How much of Anle's equity cost of capital is expected to be satisfied by dividend yield and how much by capital gain? The portion of Anle's equity cost of capital that is expected to be satisfied by the dividend yield is 5%. (Round to two decimal places.) The portion of Anle's equity cost of capital that is expected to be satisfied by capital gains is 10%. (Round to two decimal places.)
Suppose Acap Corporation will pay a dividend of $ 2.80 per share at the end of this year and $ 3.00 per share next year. You expect Acap's stock price to be $ 52.00 in two years. Assume that Acap's equity cost of capital is 10.0 %. a. What price would you be willing to pay for a share of Acap stock today, if you planned to hold the stock for two years? b. Suppose instead you plan to hold the stock for one year. For what price would you expect to be able to sell a share of Acap stock in one year? c. Given your answer in (b), what price would you be willing to pay for a share of Acap stock today if you planned to hold the stock for one year? How does this compare to your answer in (a)?
a. What price would you be willing to pay for a share of Acap stock today, if you planned to hold the stock for two years? If you plan to hold the stock for two years, the price you would pay for a share of Acap stock today is $ 48. (Round to the nearest cent.) b. Suppose instead you plan to hold the stock for one year. For what price would you expect to be able to sell a share of Acap stock in one year? The price for which you expect to sell a share of Acap stock in one year is $ 50. (Round to the nearest cent.) c. Given your answer in (b), what price would you be willing to pay for a share of Acap stock today if you planned to hold the stock for one year? How does this compare to your answer in (a)? Given your answer in (b), the price you would be willing to pay for a share of Acap stock today, if you planned to hold the stock for one year is $ 48. (Round to the nearest cent.) When you compare your answer in (a) to the answer in (c), (Select the best choice below.) A. The price in part (a) is lower than the price in part (c). B. The price in part (a) is higher than the price in part (c). C. The price in part (a) is the same as the price in part (c). Your answer is correct. D. They are not comparable values. Question is complete.
