1 Valuing Bonds FMP 1. A 5-year bond with a coupon rate of 4% has a face value of $1000. What is the annual interest payment? 2. A 3-year bond with 10% coupon rate and $1000 face value yield to maturity is 8% . Assuming annual coupon payment, calculate the price of the bond. 3. A 10-year bond with 12.5% coupon rate and $1000 face value yield to maturity is 14.5% . Assuming annual coupon payment, calculate the price of the bond. 4. A 10-year bond with 12.5% coupon rate and $1000 face value yield to maturity is 14.5% . Assuming semi annual coupon payment, calculate the price of the bond. 5. A four-year bond has an 8% coupon rate and a face value of $1000. If the current price of the bond is $878.31, calculate current yield assuming annual interest payments. 6. A five -year bond has an 8% coupon rate and a face value of $1000. If the current price of the bond is $1075, calculate current yield assuming annual interest payment. 7. A twenty year bond is currently selling at $850 and current yield is 8%. What coupon rate offered by company? 8. A twenty year bond is currently selling at $1250 and current yield is 8%. What coupon rate offered by company? 9. A three-year bond has 8.0% coupon rate and face value of $1000. If the yield to maturity on the bond is10%, calculate the price of the bond assuming that the bond makes semiannual coupon interest payments. 10. A four-year bond has an 8% coupon rate and a face value of $1000. If the current price of the bond is $878.31, calculate the yield to maturity of the bond (assuming annual interest payments). 11. A ten -year bond has an 10% coupon rate and a face value of $1000. If the current price of the bond is $1150, calculate the yield to maturity of the bond (assuming annual interest payments). 12. A 9.3% annual coupon bond with a 10-year maturity and a $1,000 par value has a yield to maturity of 8%. Assuming that the yield curve is flat and doesn’t shift, calculate the holding period return you would achieve from buying the bond, holding it for one year only. 13. Suppose you want to offer zero coupon bond with a face value of $1,000 maturing in twenty years. If the yield to maturity (YTM) on the bond is 8.00%, what will the price of the bond offered by your company? 2 14. Suppose you offer zero coupon bond at $245 with a face value of $1,000 maturing in twenty years. If the yield to maturity (YTM) on the bond is 8.00%, what will the price of the bond after two years? 15. A bond for J. Morris, Inc. a coupon rate of 6%. The yield to maturity is 7%. The bond has a remaining life of 20 years and makes semi-annual coupon payments? What is the present value of the bond’s face value? 16. A bond for Firebird, Inc. has a coupon rate of 7%. The yield to maturity is 6.8%. The bond has a remaining life of 30 years and makes annual coupon payments? What is this bond’s current market value? 17. A bond for J. Morris, Inc. a coupon rate of 6%. The yield to maturity is 7%. The bond has a remaining life of 20 years and makes semi-annual coupon payments? What is this bond’s current market value? 18. A bond for Ballhawkers, Inc. has a coupon rate of 7%. The yield to maturity is 6.8%. The bond has a remaining life of 30 years and makes semi-annual coupon payments? What is this bond’s current market value? STOCK VALUATION 19. If current price of stock is $25 and you hold it for one year and received dividend of $2.5. You sold it at $27. How much return you received? Show dividend yield and capital gain separately. 20. If investor required return is 20% and capital gain is 8% how much dividend company should pay? 21. Current price of stock is $20 and expected price after one year is 22.5. If investor required return is 18%. What percentage of dividend should company pay? 22. You own a stock that will start paying $0.50 annually at the end of the year. It has zero growth in future. If the required rate of return is 14%, what should you pay per share? 23. You own a stock that will start paying $0.50 annually at the end of the year. It will then grow each year at a constant annual rate of 5%. If the required rate of return is 14%, what should you pay per share? 24. What should you pay for a stock assuming you expect the following: a dividend of $1.00 paid at the end of years 1 and 2; investor required return is 8 percent; and selling price of $31 at the end of two years? 3 25. Assume that IBM is expected to pay a total cash dividend of $5.60 next year and that dividends are expected to grow at a rate of 5% per year forever. Assuming annual dividend payments, what is the current market value of a share of IBM stock if the investor required return on IBM common stock is 10%? 26. Consider the following for a firm. Its stock price (P0) is at $50, its payout ratio (POR) is 0.4, its EPS1 is $2.00, and its expected return on the money retained (i) is 0.10. What is its required rate of return by investor? 27. You own a stock that is currently selling for $50. You expect a dividend of $1.50 next year and you require a 12% rate of return.. What is the dividend growth rate for your stock assuming constant growth? 28. What would you pay for a stock expected to pay a $2.50 dividend in one year if the expected dividend growth rate is zero and you require a 10% return on your investment? 29. Consider the following for a firm. Its stock price (P0) is at $50, its payout ratio (POR) is 0.4, its EPS1 is $2.00, and its expected return on the money retained (i) is 0.10. What is its dividend yield? 30. Consider the following for a firm. Its stock price (P0) is at $50, its payout ratio (POR) is 0.4, its EPS1 is $2.00, and its expected return on the money retained i is 0.10. What is capital gains in terms of percentage? 31. What would you pay for a stock expected to pay a $2.25 dividend in one year if the expected dividend growth rate is 3% and you require a 12% return on your investment? 32. You are considering investing in ICI. Suppose ICI currently paid $3 dividend and enjoying super growth and expected to pay 30% more in dividends each year for 3 years. After these three years the dividend growth rate is expected to be 2% per year forever. If the required return for ICI common stock is 11%, what is a share worth today? 33. You are considering investing in ICI. Suppose ICI is currently undergoing expansion and is not expected to change its cash dividend while expanding for the next 4 years. This means that its current annual $3.00 dividend will remain for the next 4 years. After the expansion is completed, higher earnings are expected to result causing a 30% increase in dividends each year for 3 years. After these three years of 30% growth, the dividend growth rate is expected to be 2% per year forever. If the required return for ICI common stock is 11%, what is a share worth today?
