12 May WHAT MUST THE COUPON RATE BE ON MERTONS BONDS?
Finding the r on a bond question or the market value on a bond question is just like finding the interest rate or present value on an annuity with a lump sum at the end.Its recommend to set up a table like this for the following questions.ThanksPV00FV00Rate00PMT00N00Fill in the four things you know and then solve for the fifth thing (the one you don’t know). Keep you signs +/1 consistent. And keep you time periods in line. If you use semiannual payments, use semiannual rates. Semiannual payments are typical for bonds.Chapter questionsLO 2 2.Interpreting Bond Yields. Suppose you buy a 7 percent coupon, 20-year bond today when its first issued. If interest rates suddenly rise to 15 percent, what happens to the value of your bond? Why?LO 2 3.Bond Prices. Lycan, Inc., has 7 percent coupon bonds on the market that have 8 years left to maturity. The bonds make annual payments. If the YTM on these bonds is 9 percent, what is the current bond price?LO 2 4.Bond Yields. The Timberlake-Jackson Wardrobe Co. has 10 percent coupon bonds on the market with nine years left to maturity. The bonds make annual payments. If the bond currently sells for $1,145.70, what is its YTM?LO 2 5.Coupon Rates. Merton Enterprises has bonds on the market making annual payments, with 16 years to maturity, and selling for $963. At this price, the bonds yield 7.5 percent. What must the coupon rate be on Mertons bonds?LO 2 6.Bond Prices. App Store Co. issued 15-year bonds one year ago at a coupon rate of 6.1 percent. The bonds make semiannual payments. If the YTM on these bonds is 5.3 percent, what is the current bond price?LO 2 7.Bond Yields. Night Hawk Co. issued 15-year bonds two years ago at a coupon rate of 8.4 percent. The bonds make semiannual payments. If these bonds currently sell for 108 percent of par value, what is the YTM?LO 2 8.Coupon Rates. Osbourne Corporation has bonds on the market with 10.5 years to maturity, a YTM of 9.4 percent, and a current price of $945. The bonds make semiannual payments. What must the coupon rate be on the bonds?LO 12.Stock Values. The next dividend payment by Mosby, Inc., will be $2.45 per share. The dividends are anticipated to maintain a 5.5 percent growth rate, forever. If the stock currently sells for $48.50 per share, what is the required return?LO 14.Stock Values. Ziggs Corporation will pay a $3.85 per share dividend next year. The company pledges to increase its dividend by 4.75 percent per year, indefinitely. If you require a 12 percent return on your investment, how much will you pay for the companys stock today?LO 15.Stock Valuation. Bruer, Inc., is expected to maintain a constant 5.8 percent growth rate in its dividends, indefinitely. If the company has a dividend yield of 4.3 percent, what is the required return on the companys stock?LO 17.Stock Valuation. Bowman Corp. pays a constant $13 dividend on its stock. The company will maintain this dividend for the next eight years and will then cease paying dividends forever. If the required return on this stock is 9 percent, what is the current share price?Finding the r on a bond question or the market value on a bond question is just like finding the interest rate or present value on an annuity with a lump sum at the end.Its recommend to set up a table like this for the following questions.ThanksPV00FV00Rate00PMT00N00Fill in the four things you know and then solve for the fifth thing (the one you don’t know). Keep you signs +/1 consistent. And keep you time periods in line. If you use semiannual payments, use semiannual rates. Semiannual payments are typical for bonds.Chapter questionsLO 2 2.Interpreting Bond Yields. Suppose you buy a 7 percent coupon, 20-year bond today when its first issued. If interest rates suddenly rise to 15 percent, what happens to the value of your bond? Why?LO 2 3.Bond Prices. Lycan, Inc., has 7 percent coupon bonds on the market that have 8 years left to maturity. The bonds make annual payments. If the YTM on these bonds is 9 percent, what is the current bond price?LO 2 4.Bond Yields. The Timberlake-Jackson Wardrobe Co. has 10 percent coupon bonds on the market with nine years left to maturity. The bonds make annual payments. If the bond currently sells for $1,145.70, what is its YTM?LO 2 5.Coupon Rates. Merton Enterprises has bonds on the market making annual payments, with 16 years to maturity, and selling for $963. At this price, the bonds yield 7.5 percent. What must the coupon rate be on Mertons bonds?LO 2 6.Bond Prices. App Store Co. issued 15-year bonds one year ago at a coupon rate of 6.1 percent. The bonds make semiannual payments. If the YTM on these bonds is 5.3 percent, what is the current bond price?LO 2 7.Bond Yields. Night Hawk Co. issued 15-year bonds two years ago at a coupon rate of 8.4 percent. The bonds make semiannual payments. If these bonds currently sell for 108 percent of par value, what is the YTM?LO 2 8.Coupon Rates. Osbourne Corporation has bonds on the market with 10.5 years to maturity, a YTM of 9.4 percent, and a current price of $945. The bonds make semiannual payments. What must the coupon rate be on the bonds?LO 12.Stock Values. The next dividend payment by Mosby, Inc., will be $2.45 per share. The dividends are anticipated to maintain a 5.5 percent growth rate, forever. If the stock currently sells for $48.50 per share, what is the required return?LO 14.Stock Values. Ziggs Corporation will pay a $3.85 per share dividend next year. The company pledges to increase its dividend by 4.75 percent per year, indefinitely. If you require a 12 percent return on your investment, how much will you pay for the companys stock today?LO 15.Stock Valuation. Bruer, Inc., is expected to maintain a constant 5.8 percent growth rate in its dividends, indefinitely. If the company has a dividend yield of 4.3 percent, what is the required return on the companys stock?LO 17.Stock Valuation. Bowman Corp. pays a constant $13 dividend on its stock. The company will maintain this dividend for the next eight years and will then cease paying dividends forever. If the required return on this stock is 9 percent, what is the current share price?
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