1.
Six years ago,
The Corzine Company sold a 20-year bond issue with a 14 percent annual coupon
rate and a 9 percent call premium.
Today, Corzine called the bonds.
The bonds originally were sold at their face value of $1,000. Compute the realized rate of return for
investors who purchased the bonds when they were issued and who surrender them
today in exchange for the call price.
1.
You just
purchased a bond which matures in 5 years.
The bond has a face value of $1,000, and has an 8 percent annual
coupon. The bond has a current yield of
8.21 percent. What is the bond’s yield
to maturity?
1.
The Dass
Company’s bonds have 4 years remaining to maturity. Interest is paid annually; the bonds have a
$1,000 par value; and the coupon interest rate is 9 percent. What is the yield to maturity at a current
market price of $829? Would you pay $829
for one of these bonds if you thought that the appropriate rate of return was
12 percent?
1.
Sitel Inc. has a
bond which matures in 7 years and currently sells for $1,020. The bond has a face value of $1,000 and a
yield to maturity of 10.5883 percent.
The bond pays coupons semiannually.
What is the bond’s current yield?
1.
Look up the
prices of AT&T bonds in the Wall
Street Journal. If AT&T were to
sell a new issue of $1,000 par value long-term bonds, approximately what coupon
interest rate would it have to set on the bonds if it wanted to bring them out
at par?
1. A stock is trading at $80 per share. The stock is expected to have a year-end
dividend of $4 per share which is expected to grow at some constant rate g
throughout time. The stock’s required
rate of return is 14 percent. If you are
an analyst who believes in efficient markets, what would be your forecast of g?
1. What will be the nominal rate of return on a preferred
stock with a $100 par value, a stated dividend of 8 percent of par, and a
current market price of $140?
1. Microtech Corporation is expanding rapidly, and it
currently needs to retain all of its earnings, hence it does not pay any dividends. However, investors expect Microtech to begin
paying dividends, with the first dividend of $1.00 coming 3 years from
today. The dividend should grow rapidly
– at a rate of 50 percent per year – during Years 4 and 5. After Year 5, the company should grow at a
constant rate of 8 percent per year. If
the required return on the stock is 15 percent, what is the value of the stock
today?
1. You buy a share of The Xu Corporation stock for
$21.40. You expect it to pay dividends
of $1.07, $1.1449, and $1.2240 in Years 1, 2, and 3, respectively, and you
expect to sell it at a price of $26.22 at the end of 3 years. Calculate the growth rate in dividends. Calculate the expected dividend yield. What is this stock’s expected total rate of
return?
