Question

discount rate is 10%. 2. (a) Calculate the current price of Patience, Inc. stock that is expected to pay a dividend of $4/share at the end of each year from year 33 through year 61, given a discount rate of 5%. This stock is not expected to pay any divi- dends before, nor any dividends after, this range of dividend payments. (b) What do you estimate that the price will be for Patience, Inc. stock 30 years from now (i.e., at t=30)? 3. Tennessee Jed Co. (TJC) bonds mature in 9 years and pay an annual coupon of 8%. They have a face value of

Answer 1

(2) Dividend Payment Tenure: Between Year 33 and Year 61, Number of Dividends = 29

Discount Rate = 5%

Level Bond = $ 4

Stock price at the end of Year 32 = P32 = 4 x (1/0.05) x [1-{1/(1.05)^(29)}] = $ 60.56

Current Stock Price = P0 = 60.56 / (1.05)^(32) = $ 12.71

(b) Stock Price After Year 30 = 60.56 / (1.05)^(2) = $ 54.93

NOTE: Please raise separate queries for solutions to the remaining unrelated questions, as one query is restricted to the solution of only one complete question up to four sub-parts.

(b)