1. Imagine that you invest in a current bond with an annual coupon of 6% and a remaining maturity of 10 years. The bond has a face value of $900 and a market interest rate of 8%. Determine the payment you must make for the bonus.
2. Mobile Motors Inc. bonds have 12 years remaining until maturity. Interest is paid annually, has a face value of $2,000, the coupon interest rate is 7% and an 11% yield to maturity. Determine the current price of the bond in the market. (4 points)
3. Cassidy Industries' outstanding bonds have a face value of $800, a semiannual coupon of 8%, 12 years to maturity, and a YTM of 10%. Determine the price of the bond. (4 points)
4. Suppose a bond has a face value of $3,000, 10 years to maturity, an annual coupon of 7%, and sells for $2,800. Calculate the yield to maturity (YTM). Calculate the price in 4 years, assuming that the yield to maturity remains constant. (8 points)
5. Suppose Roberto is considering a 12-year bond with a face value of $2,000 and a rate of 8% payable semiannually. Calculate the payment Roberto would have to make if an "effective" annual interest rate of 8.2% were required. (4 points)
6. River Industries paid $2.00 dividends per share. The dividend is expected to increase 10% annually for the next 4 years and 6% in the remaining years. Calculate the expected dividend per share for each of the 6 years. (6 points)
7. Corner Company is estimated to generate $18 million in free cash flow during the first year, and this is expected to grow at a constant rate of 5% per year. The company has no debt or preferred stock and its weighted average cost of capital (WACC) is 9%. Calculate the value per share, considering that the company has $32 million in shares outstanding. (4 points)
8. Calculate the nominal rate of return on a perpetual preferred stock with a par value of $200, a dividend of 9% of the par value, and a current market price of $100. (4 points)
9. Rome Corporation invests in the research and development department and will not pay dividends for the next few years. The company Venetian Industries is interested in acquiring shares of Rome Corporation. Venetian's CEO has estimated Rome's free cash flows for the next 3 years: $7 million, $9 million, and $12 million. After the third year, free cash flow is expected to grow 5% steadily. Rome Corporation's weighted average cost of capital (WACC) is 7%, with the market value of its debt and preferred stock totaling $60 million. Rome Corporation has $22 million of non-operating assets and 9 million shares of common stock outstanding. (12 points)
10. Calculate the present value of the expected free cash flows for the next 3 years. Determine the market value of Rome Corporation's operations.
11. Calculate an estimate of the price per share of Rome Corporation.