Question

Yield to Maturity and Current Yield

You just purchased a bond that matures in 12 years. The bond has a face value of $1,000 and has an 7% annual coupon. The bond has a current yield of 5.74%. What is the bond's yield to maturity? Round your answer to two decimal places.

Constant Growth Valuation

Boehm Incorporated is expected to pay a $3.80 per share dividend at the end of this year (i.e., D₁ = $3.80). The dividend is expected to grow at a constant rate of 4% a year. The required rate of return on the stock, r_s, is 19%. What is the estimated value per share of Boehm's stock? Round your answer to the nearest cent.

Preferred Stock Valuation

Nick's Enchiladas Incorporated has preferred stock outstanding that pays a dividend of $5 at the end of each year. The preferred sells for $50 a share. What is the stock's required rate of return (assume the market is in equilibrium with the required return equal to the expected return)? Round the answer to two decimal places.

Nonconstant Growth Valuation

A company currently pays a dividend of $1.75 per share (D₀ = $1.75). It is estimated that the company's dividend will grow at a rate of 18% per year for the next 2 years, and then at a constant rate of 8% thereafter. The company's stock has a beta of 1.2, the risk-free rate is 5%, and the market risk premium is 3%. What is your estimate of the stock's current price? Do not round intermediate calculations. Round your answer to the nearest cent.

Answer 1

1	Price = Annual coupon/Current yield	1219.512195
	YTM	4.58%
2	Value of share = D1/(k-g)	25.33333333
3	Required rate = Annual dividend/ Price	10.00%
4	Required rate = Rf+ Beta*Rp	8.600%
	Year	Dividend	Horizon value	Total cash flow
	1	2.065		2.065
	2	2.4367	438.606	441.0427
	3	2.631636
			Share value	443.1077

WORKINGS