Question
Bond Valuation All bonds have a $1,000 face or par value unless otherwise stated. kc is the coupon rate and kd is the market cost
Bond Valuation All bonds have a $1,000 face or par value unless otherwise stated. kc is the coupon rate and kd is the market cost of debt (a.k.a. "YTM").
A) If the expected rate of return on a stock is lower than the required rate,
a. The stock is experiencing supernormal growth.
b. The stock should be sold.
c. The company is probably not trying to maximize price per share.
d. The stock is a good buy.
e. Dividends are not being declared.
B). Assuming g will remain constant, the dividend yield is a good measure of the required return on a common stock under which of the following circumstances?
a. g = 0.
b. g > 0.
c. g < 0.
d. Under no circumstances.
e. Answers a and b are both correct.
C) A share of common stock has just paid a dividend of $5.00. If the expected long-run growth rate for this stock is 13 percent, and if investors require a 15 percent rate of return, what is the price of the stock?
a. $301.50
b. $282.50
c. $256.86
d. $245.00
e. $290.92
D) A share of common stock has just paid a dividend of $2.00. If the expected long-run growth rate for this stock is 15 percent, and if investors require a 19 percent rate of return, what is the price of the stock?
E) You are considering the purchase of a common stock that just paid a dividend of $4.00. You expect this stock to have a growth rate of 20 percent for the next 3 years, then to have a long-run normal growth rate of 15 percent thereafter. If you require a 25 percent rate of return, how much should you be willing to pay for this stock?
a. $41.26
b. $38.50
c. $49.46
d. $62.25
e. $51.76
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started