Question
Please help *Im having trouble* thank you 1. Suppose youre given the following information for some assets; a 12-year 2.6%-coupon bond of semi-annual coupon payment
Please help *Im having trouble* thank you
1. Suppose youre given the following information for some assets; a 12-year 2.6%-coupon bond of semi-annual coupon payment with face value as $1,000, a common stock of $3.20 expected dividend with 2.5% growth rate currently. Both bond and common stock are issued by Company M&M. Answer the following questions.
d. Suppose the dividend growth rate for the g%. If the stock price right now is $20.25 per share, what is possible growth rate of dividends g if using the rate of return obtained from c)? rate from c= 17.2%
e. Suppose the bond is convertible. That is, at the end of the 3rd year after issuance, the holder of the bond has the right to convert the bond with 1 to 4 ratio toward company M&Ms common stock. Would you possibly convert the bond at the end of 4th year if based on the above information in a) and c)?
f. Why the so-called fair value of financial asset is represented by the present value of future cash flows of financial asset?
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