| Common Stock and Preferred Stock | |||
| PROBLEM 1 | |||
| PREFERRED STOCK VALUATION | |||
| 1) What is the value of the preferred stock when the dividend rate is 14% and the par value is $100? The discount rate is 12%. | |||
| Dividend rate | 14.0% | ||
| Par value | $100.00 | ||
| Discount rate | 12.0% | ||
| Present Value | |||
| PROBLEM 2 | |||
| PREFERRED STOCK VALUATION | |||
| 2) Assume a preferred stock is selling for $33 per share in the market and pays a dividend of $3.60 annually. | |||
| Market price | $33.00 | ||
| Dividend | $3.60 | ||
| a) return | |||
| b) value | |||
| c) invest? | |||
| PROBLEM 3 | |||
| COMMON STOCK VALUATION | |||
| 3) A common stock paid $1.32 in dividends last year and is expected to grow indefinitely at an annual rate of 7%. What is the value of the stock if you require a return of 11%? | |||
| Growth rate | 7.0% | ||
| Dividend | $1.32 | ||
| Required rate | 11.0% | ||
| Value | |||
| PROBLEM 4 | |||
| COMMON STOCK VALUATION | |||
| 4) A common stock paid $1.32 in dividends last year. Dividends are expected to grow at 8% annually indefinitely. | |||
| Dividends last year | $1.32 | ||
| Dividend growth | 8.0% | ||
| Current market price | $23.50 | ||
| a) expected rate of return | |||
| b) required return | 10.50% | ||
| value | |||
| c) invest? | |||
Instructions
1) What is the value of the preferred stock when the dividend rate is 14% and the par value is $100? The discount rate is 12%.
2) Assume a preferred stock is selling for $33 per share in the market and pays a dividend of $3.60 annually.
a) What is the expected rate of return on the stock?
b) If you require a 10% rate of return, what is the value of the stock to you?
c) Would you invest in the stock? Explain.
3) A common stock paid $1.32 in dividends last year and is expected to grow indefinitely at an annual rate of 7%. What is the value of the stock if you require a return of 11%?
4) A common stock paid $1.32 in dividends last year. Dividends are expected to grow at 8% annually indefinitely.
a) If the stock currently sells at $23.50 per share, what is the stock’s expected return?
b) If you require a return of 10.5%, what is the value of the stock for you?
c) Should you make the investment? Explain.
| Bond Valuation and Yield | ||
| A bond has a par value of $1,000, pays $70 semiannually and has a maturity of 15 years. | ||
| 1) If the bond earns 12% per year, what is the price of the bond? | ||
| Rate | ||
| Nper | ||
| PMT | ||
| FV | ||
| Type | ||
| PV | ||
| 2) What is the yield to maturity for the bond? | ||
| Nper | ||
| PMT | ||
| PV | ||
| FV | ||
| Type | ||
| Rate | ||
| 3) What would be the bond’s price if the rate earned declined to 8% per year? | ||
| Rate | ||
| Nper | ||
| PMT | ||
| FV | ||
| Type | ||
| PV | ||
| 4) If the maturity period is reduced to 10 years and the required rate of return is 8%, what would be the price of the bond? | ||
| Rate | ||
| Nper | ||
| PMT | ||
| FV | ||
| Type | ||
| PV | ||
| 5) What is the yield to maturity for the bond when the maturity is 10 years and the required rate of return is 8%? | ||
| Nper | annualized | |
| PMT | ||
| PV | ||
| FV | ||
| Type | ||
| Rate | ||
| 6) What generalizations about bond prices, interest rates, and maturity periods can be made based on the calculations made above? | ||
Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.
You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.
Read moreEach paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.
Read moreThanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.
Read moreYour email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.
Read moreBy sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.
Read more