Question

6 UMD Corp has bonds on the market with 15 ye is 5.5%, a par value of $1,000 and a current prie payment. What is the coupon rate of the bonds? arket with 15 years to maturity, the current yield to maturity nd a current price of $960. The bonds makes semi-annual 2.25% Uow 2.55% 4.75% 5.10% 5.55% The dividend growth model: I assumes that dividends increase at a constant rate forever II. can be used to compute a stock price at any point in time. III. can be used to value low-growth stocks. IV. requires the growth rate to be less than the required return. I and Ill only II and IV only I, III, and IV only I, II, and IV only I, II, III, and IV 8 Miller Brother's Hardware paid an annual dividend of $0.95 per share last month. Today, the company announced that future dividends will be increased by 2.6%. If you require a 13% rate of return, how much should you pay to purchase the Stock? $9.23 $9.37 $9.67 $9.72 $9.88 9 Sessler Manufacturing made two announcements concerning its common stock today. First, the company announced that the next annual dividend will be $1.75 a share. Secondly, all dividends after that will decrease by 1.5 percent annually. What is the maximum you should pay to purchase the stock if you require a 14% return? $11.29 $12.64 $13.27 $14.00 $14.21 True or False: The longer the time to maturity and the higher the coupon rate, the greater the interest rate risk. 10 True False

Answer 1

6. Number of Periods =15*2 =30
Semi annual YTM =5.5%/2 =2.75%
Par Value =1000
Price =960
Coupon rate using financial calculator
I/Y=2.75%;N =30;PV =-960;FV =1000;CPT PMT =25.52
Coupon =25.52*2 =51.04
Coupon rate =51.04/1000 =5.10%(Option d is correct option)

7. Option e is correct option.I, II,III and IV is correct option

8. The price of stock =Dividend next year/(Required Rate-Growth) =0.95*(1+2.6%)/(13%-2.6%) =9.37 (option b is correct option)

9. The price of stock =Dividend next year/(Required Rate-Growth) =1.75/(14%+1.5%)  =11.29 (option a is correct option)