Question

Problems (10 pts) The ABC company has a bond with a market value of $800. The bond has a Youpon rate of 496 per year, with coupons paid annually, a maturity value of $1,000, and 5 years remaining to maturity. What is this bond's yield to maturity? What is current yield? What is capital gain yield? 127(14 pts). Hadlock Healthcare expects to pay a $1.00 dividend at the end of the year (DI $1.00). The stock's dividend is expected to grow ata mate of 10 percent a year until three years from now (-3). After this time, the stock's dividend is expected to grow at a constant rate of 5 percent a year. The stock's required rate of return K is 11 percent. A. Estimate the stock price Po B. Calculate expected dividend yield and expected capital gain yield, if purchase the stock with a price calculated in part A Estimate expected stock price in year 1, that is Estimate expected stock price in year 5, that is Ps

Answer 1

PV of Bond =800
Coupon =4%*1000 =40
Number of Periods =5
Par Value =1000
YTM using financial calculator
N=5;PMT=40;PV=-800;FV=1000;CPT I/Y =9.1637% or 9.16%

Current Yield =Coupon/Price =40/800 =5%
After 1 year maturity =5-1 =4
Price after 1 year =PV of Coupons+PV of Par Value =40*(((1-(1+9.1637%)^-4)/9.1637%)+1000/(1+9.1637%)^4=833.3099
Capital gain yield =(833.3099-800)/800 =4.16%