Question

6.) A 7.5%, 9-year bond sells for how much if it has a 10% yield?

		$853.88
		$1,045.39
		$904.26
		$824.66
		none of these

7.) A common stock will pay a $3.20 dividend, expected to grow at a constant rate of 2%. If the stock sells for $27, what is the return?

		13.34%
		12.21%
		14.49%
		13.85%
		none of these

8.) A perpetual bond sells for $885 and pays a semiannual coupon in the amount of $34. What is the annualized yield for the bond?

		7.68%
		12.22%
		4.96%
		8.04%
		none of these

Answer 1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

1000 7.50% Face value of Bond Annual coupon rate Coupon frequency in a year Years until maturity Yield to maturity 10% Sale Price of Bond $853.88 Expected dividend Constant growth rate Stock Price $3.20 2% $27.00 Rate of return 13.85% $885.00 Perpetual bond price Semi-annual coupon Semi-annual yield 3.84% Annualized Yield D 7.68%

Cell reference -

B с 1000 0.075 Face value of Bond Annual coupon rate Coupon frequency in a year Years until maturity Yield to maturity 9 0.1 -Nm 700E Sale Price of Bond =PV(C6/2,C5*2,-C3/2*C2,-C2,0) 3.2 Expected dividend Constant growth rate Stock Price 0.02 27 Rate of return =C11/C13+C12 885 Perpetual bond price Semi-annual coupon Semi-annual yield =C19/C18 Annualized Yield =C20*2

Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.