If the bond is selling for $ 1,141 what is the yield to maturity

Managerial Finance

CHAPTER 5 (Bond)

NOTE YOU MUST SHOW HOW YOU ARRIVED AT YOUR ANSWERS:

1.  Zang international Chinese chemical company has a 15% annual coupon interest rate on a $1,000 par value bond with 20 years left to maturity. Bonds of same maturity now sell to yield 11% return.

(a) How much would you be willing to pay for one of these bonds today? Why?

(b)  If the bond is selling for $ 1,141 what is the yield to maturity?

(C) Explain why some bonds sell at a premium over par value while other bonds sell at a discount. What do you know about the relationship between the coupon rate and the YTM for premium bonds?  What about for discount bonds? For bonds selling at par value?

Chapter 6 (Stocks)

NOTE YOU MUST SHOW HOW YOU ARRIVED AT YOUR ANSWERS:

2. John’s company just paid a dividend of $2.40 per share on its stock and the dividends are expected to grow at a constant rate of 5% per year. If the required rate of return on this stock is 12%, what is value of this stock?

3. Thomas Brothers stock is selling for $6.25 per share and it is expected to pay a $.50 per share dividend at the end of the year. The dividend of the stock is expected to grow at a constant rate of 7% per year.  What is expected rate of return on the stock?

4. Johnson Manufacturing is expected to pay a dividend of $1.25 per share at

The End of the year (D1 = $1.25). The stock sells for $32.50 per share, and its required rate of return is 10.5%. The dividend is expected to grow at some constant rate, g, forever. What is the equilibrium expected growth rate?

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