Question

1). ABC Company issued a 20-year quarterly pay bond 4 years ago. The face value of the bond is $1,500 and the coupon rate is 5%. The current market rate on comparable bonds is 4%. At what price would you value the bond?

2). The RBCAB Corporation just paid a dividend of $1.13 per share. The company's CFO expects that the dividend will remain at that level for three years. After year three, it is expected that the dividend will grow at a rate of 4% indefinitely. If the required return is 10%, what is the value of stock today? At 5 years? At 10 years?

Answer 1

1

K = Nx4

Bond Price =∑ [(Quarterly Coupon)/(1 + YTM/4)^k]     +   Par value/(1 + YTM/4)^Nx4

k=1

K =16x4

Bond Price =∑ [(5*1500/400)/(1 + 4/400)^k]     +   1500/(1 + 4/400)^16x4

k=1

Bond Price = 1676.64

Please ask remaining parts seperately, questions are unrelated