Question

If the present value annuity factor at 8% annually for 9 years is 6.247, what is the equivalent future value annuity factor?

A bond that matures in 10 years has a par value of $1,000 and a 4.5% annual coupon rate. The coupon is paid in two semiannual payments. Market rates on bonds of similar risk and maturity are now 7%. The part of the bond's present value that is based on the stream of interest payments is:

If you require a nominal return of 4 percent annually, how much would you be willing to pay for a zero coupon bond with a face value of $1,000 that matures in 12 years. Assume semiannual compounding.

If the 1-year spot rate quoted today is 2% and the 2-year spot rate quoted today is 9%, based on the expectations theory, what is the 1-year forward rate one year from today?

R&D Technology Corporation just paid a dividend of $1.00 per share. Analysts expect its dividend to grow at 19% per year for the next two years and then 4% per year thereafter. If the required rate of return in the stock is 13%, calculate the current value of the stock.

Answer 1

1)If the present value of annuity factor is 8%, and for 9 years it is 6.247 then the future value will be

1.08⁹=2, therefore 6.247*Future factor = 12.488 (Approx.),

2)Nominal rate=4%, 12 years semi annual therefore 24 compounding periods par value is $1000, therefore interest we recieve is 1.02²⁴=1.608, $1000*1.608=1608 or interest of $608, The ZCB can be bought for 1000-608=$392

3) F1=2%, 2 year spot rate is 9%

1.02 * X= 1.09²

X=1.164 or Forward rate one year from today is 16.4%.

4) Dividend to grow at 19%. therefore D2= 1.19²= $1.4161

Now we use dividend Discount model

Value of stock = Dividend/(Discount rate-Growth)

1.4161/(0.13-0.04) =$15.735