Question
1) JRN Enterprises just announced that it plans to cut its dividend from $2.75 to $1.10 per share and use the extra funds to expand
1) JRN Enterprises just announced that it plans to cut its dividend from
$2.75 to $1.10 per share and use the extra funds to expand its operations. Prior to this announcement, JRN's dividends were expected to grow at 6% per year and JRN's stock was trading at $25.50 per share. With the new expansion, JRN's dividends are expected to grow at 12% per year indefinitely. Assuming that JRN's risk is unchanged by the expansion, the value of a share of JRN after the announcement is closest to:
A.$ 10.20
B.$ 57.48
C.$22.99
D.$25.50
2) The Sisyphean Company has a bond outstanding with a face value of $5,000 that reaches maturity in 15 years. The bond certificate indicates that the stated coupon rate for this bond is 8.3% and that the coupon payments are to be made semiannually.
Assuming that this bond trades for
$4,468, then the YTM for this bond is closest to:
A.7.7%
B.11.6%
C.9.7%
D.13.5%
3) A $5,000 bond with a coupon rate of 5.5% paid semiannually has ten years to maturity and a yield to maturity of 6.6%. If interest rates fall and the yield to maturity decreases by 0.8%, what will happen to the price of the bond?
A.rise by
$ 285.39
B.fall by
$342.47
C.rise by
$ 399.55
D.fall by
$ 285.39
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