Sunday, August 11, 2013
1) Interpreting Bond Yields? [LO2] Suppose you buy a 7 percent coupon. 20-year bond today when its first issued. If interest rates suddenly rise to 15 percent, what happens to the value of your bond? Why?
2) Bond Prices [LO2] Stained, Inc., has 7.5 percent coupon bonds on the market that have 10 years left to maturity. The bonds make annual payments. If the YTM on these bonds is 8.75 percent, what is the current bond price?
3) Bond Yields [LO2] Ackerman Co. has 9 percent coupon bonds on the market with nine years left to maturity. The bonds make annual payments. If the bond currently sells for $934, what is its YTM?
4) Bond Prices [LO2] Grohl Co. issued 11-year bonds a year ago at a coupon rate of 6.9 percent. The bonds make semiannual payments. If the YTM on these bonds is 7.4 percent, what is the current bond price?
5) Bond Yields [LO2] Ngata Corp. issued 12-year bonds 2 years ago at a coupon rate of 8.4 percent. The bonds make semiannual payments. If these bonds currently sell for 105 percent of par value, what is the YTM?
6) Calculating Real Rates of Return [LO4] If Treasury bills are currently paying 7 percent and the inflation rate is 3.8 percent, what is the approximate real rate of interest? The exact real rate?
7) Inflation and Nominal Returns [LO4] suppose the real rate is 3 percent and the inflation rate 4.7 percent. What rate would you expect to see on a Treasury bill?
8) Nominal versus Real Returns [LO4] Say you own an asset that had a total return last year of 11.4 percent. If the inflation rate last year was 4.8 percent, what was your real return?
9) Accrued Interest [LO2] you purchase a bond with an invoice price of $968. The bond has a coupon rate of 7.4 percent, and there are four months to the next semiannual coupon date. What is the clean price of the bond?
10) Accrued Interest [LO2] you purchase a bond with a coupon rate of 6.8 percent and a clean price of $1,073. If the next semiannual coupon payment is due in two months, what is the invoice price?
11) Stock Values [LO1] The Jackson-Timberlake Wardrobe Co, just paid a dividend of $1.95 per share on its stock. The dividends are expected to grow at a constant rate of 6 percent per year indefinitely. If Investors require an 11 percent return on the Jackson-Timberlake Wardrobe Co. stock, what is the current price? What will the price be in 3 years? In 15 years?
12) Stock Value [LO1] the next dividend payment by Hot Wings, Inc., will be $2.10 per share. The dividends are anticipated to maintain a 5 percent growth rate forever. If the stock currently sells for $48 per share, what is the required return?
13) Stock Value [LO1] for the company in the previous problem, what is the dividend yield? What is the expected capital gains yield?
14) Stock Valuation [LO1] Keenan Co. is expected to maintain a constant 5.2 percent growth rate in its dividends indefinitely. If the company has a dividend yield of 6.3 percent, what is the required return on the company’s stock?
15) Stock Valuation [LO1] Apocalyptica Corp. pays a constant $9.75 dividends on its stock. The company will maintain this dividend for the next 11 years and will then cease paying dividends forever. If the required return on this stock is 10 percent, what is the current share price?
16) Valuing Preferred Stock [LO1] Resnor, Inc., has an issue of preferred stock outstanding that pays a $5.50 dividend every year in perpetuity. If this issue currently sells for $108 per share, what is the required return?
17) Nonconstant Growth [LO1] Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next time 9 years because the firm needs to plow back its earnings to fuel growth. The company will pay a $10 per share dividends in 10 years and will increase the dividend by 5 percent per year thereafter. If the required return on this stock is 14 percent, what is the current share price?
18) Nonconstant Dividends [LO1] Bread, Inc., has an odd dividend policy. The company has just paid a dividend of $6 per share and has announced that it will increase the dividend by $4 per share for each of the next 5 years, and then never pay another dividend. If you required an 11 percent return on the company’s stock, how much will you pay for a share today?
19) Nonconstant Dividends [LO1] Far Side Corporation is expected to pay the following dividends over the next four years: $11, $8, $5, and $2. Afterward, the company pledges to maintain a constant 5 percent, what is the current share price?
20) Valuing Preferred Stock [LO1] E-Eyes.com Bank just issued some new preferred stock. The issue will pay a $20 annual dividend in perpetuity, beginning 20 years from now. If the market required a 6.4 percent return on this investment, how much does a share of preferred stock cost today?