Question

1. (Bonds) A zero-coupon bond has a $1,000 par value, 10 years to maturity, and sells for $583.89. What is its yield to maturity? Assume annual compounding. Record your answer to the nearest 0.01% (no % symbol). E.g., if your answer is 3.455%, record it as 3.46.

2. (Stocks) A stock with the required rate of return of 14.38% is expected to pay a $0.9 dividend over the next year. The dividends are expected to grow at a constant rate forever. The intrinsic value of the stock is $20.49 per share. What is the constant growth rate (in %, to the nearest 0.01%)? E.g., if your answer is 4.236%, record it as 4.24.

3.(Stocks) A stock with a beta of 2.55 is expected to pay a $2.96 dividend over the next year. The dividends are expected to grow at 2.18% per year forever. What is the stock's value per share (to the nearest cent, no $ symbol) if the risk-free rate is 1.29 and the market risk premium (i.e., the difference between the market return and the risk-free rate) is 5.33%? Note: You first need to find the required rate of return (r) using the CAPM equation.

4. (Bonds) What is the price of a bond (to the nearest cent) with 22 years to maturity, 6% coupon rate, semiannual payments, par of $1000, and the yield to maturity of 3.22%?

5. (Stocks) ABC Corp has a 13.45% return on equity and reinvests (retains) 38% of its profits. What is the intrinsic value of the company's share of stock, to the nearest penny, if the required rate of return is 13.82% and the most recent annual dividend per share (D0) was $2? If your answer is, e.g., $45.365, record it as 45.37.

Answer 1

If Annual Coupon Nper Pmt Pmt Nper Py (583.89) 1,000.00 payment Number of periods Presnt value Face value FV Rate RATE(nper,pmt,pv, fv) RATE(10,0,-583.89,1000) 5.53% p.a 5.53 Yield to maturity Yield to maturity