If a thirty-year standard corporate coupon bond has a couponrate of 7%, and if the...

If a thirty-year standard corporate coupon bond has a coupon rate of 7%, and if the YTM is 6.4% then what would be thequarterly coupons?

Suppose a firm’s stock is selling for $36.70. They just paid a $3.15 dividend and dividends are expected to grow at 4% per year. What is the required return?

Solutions

Expert Solution

The quarterly coupon is computed as follows:

= (Coupon rate / 4) x Par value

= (7% / 4) x $ 1,000

= $ 17.50

return is computed as follows:

= [ Dividend just paid x (1 + growth rate) / current price ] + growth rate

= [ ($ 3.15 x 1.04) / $ 36.70 ] + 4%

= ($ 3.276 / $ 36.70) + 4%

= 12.93%

jeff jeffy answered 2 years ago

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