MANAGERIAL FINANCE HOMEWORK

HMWK 5

1.

value:

10.00 points

Assuming semiannual compounding, what is the price of azero coupon bond with 17 years to maturity paying $1,000 at maturity if the YTM is(Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.):

Price of the Bond

a.

5 percent

$

b.

8 percent

$

c.

11 percent

$

2.

value:

10.00 points

Microhard has issued a bond with the following characteristics:

Par: $1,000

Time to maturity:13 years

Coupon rate: 8 percent

Semiannual payments

Calculate the price of this bond if the YTM is(Do not round intermediate calculations and round your answersto 2 decimal places, e.g., 32.16.):

Price of the Bond

a.

8 percent

$

b.

10 percent

$

c.

6 percent

$

3.

value:

10.00 points

Rhiannon Corporation has bonds on the market with 10.5 years to maturity, a YTM of 7.1 percent, and a current price of $1,051. The bonds make semiannual payments.

What must be the coupon rate on these bonds?(Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Coupon rate

%

4.

value:

10.00 points

A Japanese company has a bond outstanding that sells for 93 percent of its 100,000 par value. The bond has a coupon rate of 6 percent paid annually and matures in 16 years.

What is the yield to maturity of this bond?(Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Yield to maturity

%

5.

value:

10.00 points

Union Local School District has bonds outstanding with a coupon rate of 4.4 percent paid semiannually and 19 years to maturity. The yield to maturity on these bonds is 3.7 percent and the bonds have a par value of $5,000.

What is the dollar price of the bond?(Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Bond price

$

6.

value:

10.00 points

Locate the Treasury bond inFigure 8.4maturing in June 2021. Assume a par value of $10,000.

Is this a premium or a discount bond?

Discount bond

Premium bond

What is its current yield?(Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Current yield

%

What is its yield to maturity?(Do not round intermediate calculations. Enter your answer as a percent rounded to 3 decimal places, e.g., 32.161.)

YTM

%

What is the bid-ask spread in dollars?(Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)

Bid-ask spread

$

7.

value:

10.00 points

Laurel, Inc., and Hardy Corp. both have 9 percent coupon bonds outstanding, with semiannual interest payments, and both are priced at par value. The Laurel, Inc., bond has four years to maturity, whereas the Hardy Corp. bond has 15 years to maturity.

If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds?(A negative answer should be indicated by a minus sign.Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Percentage change in price of Laurel

%

Percentage change in price of Hardy

%

If interest rates were to suddenly fall by 2 percent instead, what would the percentage change in the price of these bonds be then?(Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Percentage change in price of Laurel

%

Percentage change in price of Hardy

%

HMWK6

1.

value:

10.00 points

The Starr Co. just paid a dividend of $1.20 per share on its stock. The dividends are expected to grow at a constant rate of 4 percent per year, indefinitely. Investors require a return of 10 percent on the stock.

What is the current price?(Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Current price

$

What will the price be in three years?(Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Stock price

$

What will the price be in 10 years?(Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Stock price

$

2.

value:

10.00 points

The next dividend payment by ECY, Inc., will be $1.84 per share. The dividends are anticipated to maintain a growth rate of 5 percent, forever. The stock currently sells for $36 per share.

What is the required return?(Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Required return =???=???

3.

value:

10.00 points

Siblings, Inc., is expected to maintain a constant 4 percent growth rate in its dividends, indefinitely. The company has a dividend yield of 5.8 percent.

What is the required return on the company's stock?(Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Required return

%

4.

value:

10.00 points

Bucksnort, Inc., has an odd dividend policy. The company has just paid a dividend of $7 per share and has announced that it will increase the dividend by $5 per share for each of the next five years, and then never pay another dividend. If you require a return of 12 percent on the company's stock, how much will you pay for a share today?(Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Current share price

$

5.

value:

10.00 points

Lohn Corporation is expected to pay the following dividends over the next four years: $11, $7, $6, and $3.50. Afterwards, the company pledges to maintain a constant 4 percent growth rate in dividends forever. If the required return on the stock is 14 percent, what is the current share price?(Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Current share price

$

6.

value:

10.00 points

Fifth National Bank just issued some new preferred stock. The issue will pay an annual dividend of $23 in perpetuity, beginning 12 years from now. If the market requires a return of 3.7 percent on this investment, how much does a share of preferred stock cost today?(Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Stock price

$

7.

value:

10.00 points

Consider Pacific Energy Company and U.S. Bluechips, Inc., both of which reported earnings of $963,000. Without new projects, both firms will continue to generate earnings of $963,000 in perpetuity. Assume that all earnings are paid as dividends and that both firms require a return of 13 percent.

a.

What is the current PE ratio for each company?(Do not round intermediate calculations andround your answer to 2 decimal places, e.g., 32.16.)

PE ratio

times

b.

Pacific Energy Company has a new project that will generate additional earnings of $113,000 each year in perpetuity. Calculate the new PE ratio of the company.(Do not round intermediate calculations andround your answer to 2 decimal places, e.g., 32.16.)

PE ratio

times

c.

U.S. Bluechips has a new project that will increase earnings by $213,000 in perpetuity. Calculate the new PE ratio of the firm.(Do not round intermediate calculations andround your answer to 2 decimal places,e.g., 32.16.)

PE ratio

times

8.

value:

10.00 points

Consider four different stocks, all of which have a required return of 20 percent and a most recent dividend of $3.10 per share. Stocks W, X, and Y are expected to maintain constant growth rates in dividends for the foreseeable future of 10 percent, 0 percent, and -5 percent per year, respectively. Stock Z is a growth stock that will increase its dividend by 20 percent for the next two years and then maintain a constant 12 percent growth rate thereafter.

What is the dividend yield for each of these four stocks?(Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Dividend yield

Stock W

%

Stock X

%

Stock Y

%

Stock Z

%

What is the expected capital gains yield for each of these four stocks?(Leave no cells blank - be certain to enter "0" wherever required. A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Capital gains yield

Stock W

%

Stock X

%

Stock Y

%

Stock Z

%

9.

value:

10.00 points

Storico Co. just paid a dividend of $1.95 per share. The company will increase its dividend by 24 percent next year and will then reduce its dividend growth rate by 6 percentage points per year until it reaches the industry average of 6 percent dividend growth, after which the company will keep a constant growth rate forever. If the required return on Storico stock is 16 percent, what will a share of stock sell for today?(Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Stock price

$

MANAGERIAL FINANCE HOMEWORK HMWK 5 1. value: 10.00 points Assuming semiannual compounding, what is the price of a zero coupon bond with 17 years to maturity paying $1,000 at maturity if the YTM is (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.): Price of the Bond $ a. 5 percent $ b. 8 percent $ c. 11 percent 2. value: 10.00 points Microhard has issued a bond with the following characteristics: Par: $1,000 Time to maturity: 13 years Coupon rate: 8 percent Semiannual payments Calculate the price of this bond if the YTM is (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.): Price of the Bond $ a. 8 percent $ b. 10 percent $ c. 6 percent 3. value: 10.00 points Rhiannon Corporation has bonds on the market with 10.5 years to maturity, a YTM of 7.1 percent, and a current price of $1,051. The bonds make semiannual payments. What must be the coupon rate on these bonds? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) % Coupon rate 4. value: 10.00 points A Japanese company has a bond outstanding that sells for 93 percent of its 100,000 par value. The bond has a coupon rate of 6 percent paid annually and matures in 16 years. What is the yield to maturity of this bond? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) % Yield to maturity 5. value: 10.00 points Union Local School District has bonds outstanding with a coupon rate of 4.4 percent paid semiannually and 19 years to maturity. The yield to maturity on these bonds is 3.7 percent and the bonds have a par value of $5,000. What is the dollar price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) $ Bond price 6. value: 10.00 points Locate the Treasury bond in Figure 8.4 maturing in June 2021. Assume a par value of $10,000. Is this a premium or a discount bond? Discount bond Premium bond What is its current yield? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) % Current yield What is its yield to maturity? (Do not round intermediate calculations. Enter your answer as a percent rounded to 3 decimal places, e.g., 32.161.) % YTM What is the bid-ask spread in dollars? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.) $ Bid-ask spread 7. value: 10.00 points Laurel, Inc., and Hardy Corp. both have 9 percent coupon bonds outstanding, with semiannual interest payments, and both are priced at par value. The Laurel, Inc., bond has four years to maturity, whereas the Hardy Corp. bond has 15 years to maturity. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) % Percentage change in price of Laurel % Percentage change in price of Hardy If interest rates were to suddenly fall by 2 percent instead, what would the percentage change in the price of these bonds be then? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) % Percentage change in price of Laurel % Percentage change in price of Hardy HMWK6 1. value: 10.00 points The Starr Co. just paid a dividend of $1.20 per share on its stock. The dividends are expected to grow at a constant rate of 4 percent per year, indefinitely. Investors require a return of 10 percent on the stock. What is the current price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) $ Current price What will the price be in three years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) $ Stock price What will the price be in 10 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) $ Stock price 2. value: 10.00 points The next dividend payment by ECY, Inc., will be $1.84 per share. The dividends are anticipated to maintain a growth rate of 5 percent, forever. The stock currently sells for $36 per share. What is the required return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Required return =???=??? 3. value: 10.00 points Siblings, Inc., is expected to maintain a constant 4 percent growth rate in its dividends, indefinitely. The company has a dividend yield of 5.8 percent. What is the required return on the company's stock? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Required return % 4. value: 10.00 points Bucksnort, Inc., has an odd dividend policy. The company has just paid a dividend of $7 per share and has announced that it will increase the dividend by $5 per share for each of the next five years, and then never pay another dividend. If you require a return of 12 percent on the company's stock, how much will you pay for a share today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) $ Current share price 5. value: 10.00 points Lohn Corporation is expected to pay the following dividends over the next four years: $11, $7, $6, and $3.50. Afterwards, the company pledges to maintain a constant 4 percent growth rate in dividends forever. If the required return on the stock is 14 percent, what is the current share price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) $ Current share price 6. value: 10.00 points Fifth National Bank just issued some new preferred stock. The issue will pay an annual dividend of $23 in perpetuity, beginning 12 years from now. If the market requires a return of 3.7 percent on this investment, how much does a share of preferred stock cost today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) $ Stock price 7. value: 10.00 points Consider Pacific Energy Company and U.S. Bluechips, Inc., both of which reported earnings of $963,000. Without new projects, both firms will continue to generate earnings of $963,000 in perpetuity. Assume that all earnings are paid as dividends and that both firms require a return of 13 percent. a. What is the current PE ratio for each company? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) times PE ratio b. Pacific Energy Company has a new project that will generate additional earnings of $113,000 each year in perpetuity. Calculate the new PE ratio of the company. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) times PE ratio c. U.S. Bluechips has a new project that will increase earnings by $213,000 in perpetuity. Calculate the new PE ratio of the firm. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) times PE ratio 8. value: 10.00 points Consider four different stocks, all of which have a required return of 20 percent and a most recent dividend of $3.10 per share. Stocks W, X, and Y are expected to maintain constant growth rates in dividends for the foreseeable future of 10 percent, 0 percent, and -5 percent per year, respectively. Stock Z is a growth stock that will increase its dividend by 20 percent for the next two years and then maintain a constant 12 percent growth rate thereafter. What is the dividend yield for each of these four stocks? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Dividend yield % Stock W % Stock X % Stock Y % Stock Z What is the expected capital gains yield for each of these four stocks? (Leave no cells blank - be certain to enter "0" wherever required. A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Capital gains yield % Stock W % Stock X % Stock Y % Stock Z 9. value: 10.00 points Storico Co. just paid a dividend of $1.95 per share. The company will increase its dividend by 24 percent next year and will then reduce its dividend growth rate by 6 percentage points per year until it reaches the industry average of 6 percent dividend growth, after which the company will keep a constant growth rate forever. If the required return on Storico stock is 16 percent, what will a share of stock sell for today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) $ Stock price