Question

13. If you buy a zero-coupon bond for $700 and it is redeemed at maturity 7 years later for face value, what is the yield to maturity? A$100 perpetual preferred stock pays an annual dividend of $5. Currently the yield on comparable preferred stock is 10 percent. What should b price of this stock? 14. e the A $100 perpetual stock pays an annual dividend of $5. Currently the stock is selling for its face value. If the yield on comparable stock is 10 percent, how much would you gain or lose if you sell the stock after two years? 15. A preferred stock with a maturity date of ten years has a face value of $100, and pays an annual dividend of $5. If the yield on comparable preferred stock is 8 percent, what is price if this stock?
please help me solve this asap. Thanks!

Answer 1

Answer to Question 13:

Face Value = $1,000
Current Price = $700
Time to Maturity = 7 years

Let YTM be i%

$700 = $1,000 * PV of $1 (i%, 7)
$700 = $1,000 / (1 + i)^7
(1 + i)^7 = 1.428571
1 + i = 1.0523
i = 0.0523 or 5.23%

Yield to Maturity = 5.23%

Answer to Question 14:

Annual Dividend = $5
Similar Risk Stock Yield = 10%

Price of Stock = Annual Dividend / Similar Risk Stock Yield
Price of Stock = $5 / 0.10
Price of Stock = $50.00