Question

XYZ has now share of stock and one bond. The total value of the two securities is $1,400. The stock pays annual dividends. The next dividend is expected to be $24.00 and paid in one year. In two years, the dividend is expected to be $14.00 and the stock is expected to be priced at $195.00. the stock has an expected return of 17.80 percent per year. The bond has a coupon rate of 13.60 percent and a face value of $1,000.; pays semi annual coupons with the next coupon expected in 6 months; matures in 4 years. What is the YTM of the bond?

Answer 1

141 142 143 Total Value of Bond & Stock Price of Stock at Year end 2 (P2) Cost of Equity Bond Price today (PO) $1,400.00 $195.00 17.80% $140.52 144 145 146 147 Bond Price today $1,259.48 148 149 150 151 nper pmt Maturity (semi-annual period) Semi-annual coupon Par value Current Bond Price 8 68 1000 $1,259.48 fv pv 152 153 154 Yield to Maturity (Semi-Annual) rate 3.090% 155 156 Annual YTM 6.18% 157

140 CALCULATIONS 141 142 Total Value of Bond & Stock 1400 143 Price of Stock at Year end 2 (P2) 195 144 Cost of Equity 0.178 145 Bond Price today (PO) =C143/((1+C144)^2) 146 147 Bond Price today =C142-C145 148 149 Maturity (semi-annual period) nper 150 Semi-annual coupon pmt 151 Par value fv 152 Current Bond Price pv 153 154 Yield to Maturity (Semi-Annual) rate 155 Annual YTM =4*2 = 1000*13.6%*0.5 1000 =C147 I=RATE(D149,D150,-D152,D151) | 156) =D154*2