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AU FIN 365 - Bond Valuation

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Problem Set: Stocks and Bonds(Solutions Below)Bond Valuation1. What is the price of the following annual bond? Is it is premium,discount or par value bond? face value: $1,000 maturity: 10 years coupon rate: 8% discount rate: 9%2. What is the price of the following annual bond? Is it is premium,discount or par value bond? face value: $1,000 maturity: 50 years coupon rate: 10% discount rate: 12%3. What is the value of the following semi-annual bond? Is it ispremium, discount or par value bond? face value: $1,000 maturity: 10 years coupon rate: 10% discount rate: 9%4. What is the value of the following semi-annual bond? Is it ispremium, discount or par value bond? face value: $1,000 maturity: 9.5 years coupon rate: 7%discount rate: 7%5. What is the value of the following semi-annual bond? Is it ispremium, discount or par value bond? face value: $1,000 maturity: 20 years coupon rate: 9% discount rate: 10%6. What is the price of the following quarterly bond? Is it ispremium, discount or par value bond? face value: 1,000 maturity: 10 years coupon rate: 10% discount rate: 8%7. What is the price of the following semi-annual bond? Is it ispremium, discount or par value bond? face value: $1,000 maturity: 10 years coupon rate: 8%discount rate: 9% Bond Returns8. What is the yield to maturity (YTM) and the yield to call (YTC) ofthe following annual bond? face value: $1,000 maturity: 10 years coupon rate: 8% price: $925call price: $1,150years to call: 59. What is the yield to maturity and the yield to call of the followingannual bond? face value: $1,000 maturity: 50 years coupon rate: 10%price: $850call price: $1,100years to call: 1010. What is the yield to maturity and the yield to call of thefollowing semi-annual bond? face value: $1,000 maturity: 10 years coupon rate: 10% price: $1,000call price: $1,150years to call: 411. What is the yield to maturity and the yield to call of thefollowing semi-annual bond? face value: $1,000 maturity: 9.5 years coupon rate: 7% price: $1,020call price: $1,150years to call: 312. What is the yield to maturity and the yield to call of thefollowing quarterly bond? face value: 1,000 maturity: 10 years coupon rate: 10% price: $1,100call price: $1,200years to call: 5Common Stock13. KKL Enterprises pays a dividend of $1.50, and you expect thedividend to remain constant. How much would you pay for thestock, if your required rate of return were 11%?14. GBS Enterprises has just paid a dividend of $2.00, and youexpect the dividend to increase at 3% forever. How much wouldyou pay for the stock, if your required rate of return were 9%?15. GHI Corporation has just paid a dividend of $1.00, and it isexpected to increase for four years at 8%. Thereafter, it willincrease at 2% and r = 7%?16. What is the price of XZZ common stock? d0 = $2.00 and isexpected to increase for three years at 10%. Thereafter, it willincrease at 2% and r = 7%.17. GEF Corporation is expected to pay a constant dividend for thenext three years. In the fourth year, the dividends will begin togrow constantly by 1.3%. If this year's dividend was $3.00 andthe appropriate discount rate is 7%, what is the current price ofGEF stock?18. JKH Corporation is expected to pay the following dividends, d1=$1.34; d2 = $1.78; d3 = $2.01, for the next three years. Thedividends will to grow constantly by 2.4%, and the appropriatediscount rate is 7%, what is the current price of JKH stock?19. YHT Corporation is expected to pay a dividend growing at 30%for the next three years. In the fourth year, the dividends willbegin to grow constantly by 1.5%. If this year's dividend was$5.00 and the appropriate discount rate is 13%, what is thecurrent price of YHT stock?Preferred Stock20. A firm pays a preferred dividend of $5.50, and the required rateof return is 10.2%. What should be the price of the preferredshare?21. A firm pays a preferred dividend of $6.20, and the required rateof return is 8.9%. What should be the price of the preferredshare?22. A firm pays a preferred dividend of $3.30, and the required rateof return is 10.7%. What should be the price of the preferredshare?23. A firm pays a preferred dividend of $7.60, and the required rateof return is 8.3%. What should be the price of the preferredshare?24. A firm pays a preferred dividend of $7.45, and the required rateof return is 11.2%. What should be the price of the preferredshare?Implied Rate of Return and Growth25. HJJ Enterprises has just paid a dividend of $1.50. If you expectthe dividend to increase at 4% forever, and you are now willingto pay $27.50 for the stock. What is the implied required rate ofreturn?26. GII Enterprises will pay a dividend of $1.50 next year, and yourrequired rate of return is 12%. If you expect the dividend to growforever (at a constant rate), and you are now willing to pay$30.00 to purchase GII stock. What must the implied growthrate?27. IIL has pays a constant dividend of $1.50, and you are now topay $30.00 for the stock. What is the implied required rate ofreturn?28. IKI Enterprises has just paid a dividend of $4.50. You expect thedividend to increase at 3.2% forever, and you are now willing topay $55.54 for the stock. What is the implied required rate ofreturn?29. A firm will pay a dividend of $3.31 next year, and your requiredrate of return is 15.7%. If you expect the dividend to growforever (at a constant rate), and you are now willing to pay$30.00 to purchase the stock. What must the implied growthrate?30. A firm pays a preferred dividend of $3.45 on a share currentlyselling for $45.33. What is the implied required rate of return?SolutionsNOTE: I include the formulae solutions but you only need to know how to do this on a financial calculator.Bond Valuation1. What is the price of the following annual bond? Is it


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AU FIN 365 - Bond Valuation

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