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If the semi-annual coupons of a bond are $40, the price of the bond is $1,020,...

If the semi-annual coupons of a bond are $40, the price of the bond is $1,020, and the current yield to maturity is 9%, what is the coupon rate?

What is a fair market price for a stock that does not ever pay, nor does anyone believe, it will ever pay a dividend?

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Expert Solution

Question

Coupon rate = Coupon Amount for a year/ Par Value

Coupon rate = ($40*2)/ $1000 = 0.08 or 8%

Question

Fair value of the stock can be computed by using a Discounted cash flow method if the company doesn't pay or will ever pay any dividend. All the forecasted Free cash flows can be discounted to Present value and if the sum of the PV of FCFF is divided by the number of outstanding shares of the company, one can get the Fair value for a stock.

jeff jeffy answered 2 years ago
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