Question

PLEEEASE HEEEELP URGENTLY I have less than 1 hour

1)XYZ company has a bond with a coupon rate of 8 percent, and a yield to maturity of 7.52 percent. The face value is $1,000. Interest is paid semiannually. This bond matures in 8.5 years. What is the price of the bond?

2)What is the price for the stock of a firm that has no growth opportunities but pays a dividend of $1.36 per year? The required rate of return is 12.5 percent.

3)What is the price of ABC company's common stock that just paid an annual dividend of $0.80 that increases by 5 percent each year. The rate of return on this stock is 9 percent.

Answer 1

1)There are two semiannual period in a year comprising of 6 months each .

semiannual interest (i)= 1000*.08*6/12 = 40

semiannual period (n) = 8.5*2 = 17

semiannual yield =7.52*6/12 = 3.76%

Price =[PVA3.76%,17*Semiannual interest ]+[PVF3.76%,17*Face value]

       =[12.39527*40]   + [.53394*1000]

       = 495.81+ 533.94

       = $ 1029.75

working :

Find present value annuity factor(PVA)using financial calculator where i= 3.76%,n=17 and PMT =1

Find present value factor(PVF) using the formula 1/(1+i)^n where i= 3.76%,n=17

2)price of stock =Dividend /rs

           = 1.36/.125

          = $ 10.88 per share

3)Price = D0(1+g)/(rs-g)

        = .80(1+.05)/(.09-.05)

        = .80 *1.05 /.04

         = $ 21 per share