Question

In: Finance

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%

Solutions

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

please rate.


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