Question
Hi, Could you help me answer the following question? Thank you very much! Question 1 Trentham Estate Ltd expects to grow at a rate of
Hi,
Could you help me answer the following question?
Thank you very much!
Question 1
Trentham Estate Ltd expects to grow at a rate of 22 per cent for the next 5 years and then settle to a constant-growth rate of 6 per cent. The company's most recent dividend was $2.35. The required rate of return is 15 per cent.
Required
a Find the present value of the dividends during the rapid growth period.
b What is the price of the share at the end of year 5?
c What is the price of the share today?
d Briefly describe the factors that financial managers should consider when setting the dividend policies for their companies.
Question 2
New South Wales Treasury has issued $1,000 face value, 25-year bonds that pay a coupon of 9.875 per cent semi-annually. The current market rate for similar securities is 11 per cent.
Required
a What is the bond's current market value?
b What will be the bond's price if rates in the market (i) decrease to 9 per cent; (ii) increase to 12 per cent?
c Discuss how the interest rate changes affect the price of premium bonds and discount bonds?
d Suppose the bonds were to mature in 12 years. How would the interest rate changes in part b affect the bond prices?
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