Question
Compute the following a) A $1,000 unit bond has a coupon rate of 4% (interest paid yearly at $40 per year). The bond has five
Compute the following
a) A $1,000 unit bond has a coupon rate of 4% (interest paid yearly at $40 per year). The bond has five years left until it matures. The current market interest rate equals 5%.
Compute the bonds market value today.
b) A stock pays a $2 dividend in year zero. Investors think the dividends will grow at 3% rate per year. This investor wishes to earn 15% on any stock investments (required return). Compute the common stocks current market value.
c). A ten unit apartment building has an annual $60,000 cash flow (similar to dividend when looking at stocks). The investor thinks the end of year one cash flow will equal $60,000 times 1.025. The investor thinks these cash flows may grow at 2.5% per year. The investor wants to earn a 9% interest rate on this investment. Compute the possible apartment building value today.
d) A stock currently has $10 EPS. Analysts estimate EPS may grow at 20% per year over the next five years. What is the estimated stock price in five years if an investor thinks the stock will then sell for a 10 P/E ratio?
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