Question

PRASAD PLEASE DO NOT ANSWER THIS. YOU ARE ONLY ANSWERING 1. I NEED ALL 4. YOU HAVE ANSWERED MULTIPLE WRONG

1. Mike recently leased a car for $385 per month for 5 years. The first payment due today. If the APR is 7.32 percent compounded monthly, what is the value of the payments today?

2. You estimate that Valley, Inc. will increase its dividend at 4.6 percent for the foreseeable future. The firm recently distributed a $3.41 dividend and you estimate the required return on the stock is 11 percent. Calculate the stock's current market value.?

3. zinger has a bond outstanding with a coupon rate of 5.8 percent and semiannual payments. The bond has a yield to maturity of 6.5 percent, a par value of $2,000, and matures in 17 years. Calculate the market value of the bond?

4. Evermore bonds have a par value of $2,000 and sell for $1,950.22. The bond has a coupon rate of 6.87 percent and matures in 25 years. If the bond makes semiannual coupon payments, what is the YTM?

Answer 1

1.Information provided:

Monthly lease= $385

Time= 5 years*12= 60 months

Interest rate= 7.82%/12= 0.6517% per month

The question is concerning finding the present value of an annuity due. Annuity due refers to annuity that occurs at the beginning of a period.

This can also be solved using a financial calculator by inputting the below into the calculator:

The financial calculator is set in the end mode. Annuity due is calculated by setting the calculator to the beginning mode (BGN). To do this, press 2^nd BGN 2^nd SET on the Texas BA II Plus calculator.

The present value is calculated by entering the below in a financial calculator in BGN mode:

PMT= 385

N= 60

I/Y= 0.6517

Press the CPT key and PV to compute the present value of the annuity.

The value obtained is 19,192.77.

Therefore, the value of the payments today is $19,192.77.

2.Information provided:

Current dividend= $3.41

Dividend growth rate= 4.6%

Required return= 11%

The question can be solved using dividend discount model.

Price of the stock today= D1/(r-g)

where:

D1=next dividend payment

r=interest rate

g=firm’s expected growth rate

Price of the stock today= $3.41*(1 + 0.046)/ 0.11 – 0.046

                                             = $3.5669/ 0.0640

                                             = $55.7328   $55.73.

3. Information provided:

Par value= future value= $2,000

Coupon rate= 5.8%/2= 2.90%

Coupon payment= 0.0290*2,000= $58

Time= 17 years*2= 34 semi-annual periods

Yield to maturity= 6.5%/2= 3.25%

The market value of the bond is calculated by computed by com[putting the present value.

Enter the below in a financial calculator to compute the present value:

FV= 2,000

PMT= 58

N= 34

I/Y= 3.25

Press the CPT key and PV to compute the present value.

The value obtained is 1,857.22.

Therefore, the market value of the bond is $1,857.22.

4.Information provided:

Par value= future value= $2,000

Current value= present value=- $1,950.22

Coupon rate= 6.87%/2= 3.4350%

Coupon payment= 0.0344*2,000= $68.70

Time= 25 years*2= 50 semi-annual periods

The yield to maturity is calculated by entering the below in a financial calculator:

FV= 2,000

PV= -1,950.22

PMT= 68.70

N= 50

Press the CPT key and I/Y to compute the yield to maturity.

The value obtained is 3.5419.

Therefore, the yield to maturity is 3.5419%*2= 7.0838%   7.08%.

In case of any query, kindly comment on the solution.