Stocks A company has a constant growth rate of 5%. The company's risk adjusted discount rate...

Stocks

A company has a constant growth rate of 5%. The company's risk adjusted discount rate is 7%. The company has a $2 dividend. What is the per share value of the stock?

Bonds

Calculate the value of each of the bonds below. Interest is paid semi-annually.

Bond	Par Value	Years to Maturity	Coupon Interest Rate	Required Return
Bond #1	1000	25	10%	12%
Bond #2	1000	15	6%	6%
Bond #3	500	10	7%	10%

Expert Solution

First:

Share price = 2*(1+5%)/(7% - 5%)

= 105

Bond 1

Particulars	Cash flow	Discount factor	Discounted cash flow
present value Interest payments-Annuity (5%,50 periods)	$ 660.00	18.25593	$ 12,048.91
Present value of bond face amount -Present value (5%,50 periods)	$ 11,000.00	0.08720	$ 959.24

Bond price			$ 13,008.15

Bond 2:

Particulars	Cash flow	Discount factor	Discounted cash flow
present value Interest payments-Annuity (3%,30 periods)	$ 630.00	19.60044	$ 12,348.28
Present value of bond face amount -Present value (3%,30 periods)	$ 21,000.00	0.41199	$ 8,651.72

Bond price			$ 21,000.00

Bond 3:

Particulars	Cash flow	Discount factor	Discounted cash flow
present value Interest payments-Annuity (5%,20 periods)	$ 122.50	12.46221	$ 1,526.62
Present value of bond face amount -Present value (5%,20 periods)	$ 3,500.00	0.37689	$ 1,319.11

Bond price			$ 2,845.73

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jeff jeffy answered 1 year ago

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