QUESTION FOUR

a.Consider an 8-year, 12 percent coupon bond with a par value of $100 on which interest is payable semi-annually.The required return on this bond is 14.What is the value of the bond?

b.Consider a $1 000 par value bond, carrying a coupon rate of 9%, maturing after 8 years.The bond is currently selling for $800.What is the YTM on this bond?

c.Consider an 8 year, 10% preference stock with a par value of $1 000.The required return is 9%. What is the value of the preference stock?

d.Cornet's equity share is expected to provide a dividend of $2,00 and fetch a price of $18,00 a year hence.What price would it sell for now if the investor's required rate of return is 12%?

e.The expected dividend of Econet share is $2,00.The dividend per share of Econet has grown over the past five years at the rate of 5% per year.The growth rate will continue in future.Further the market price of the share, too, is expected to grow at the same rate.What is the fair estimate of the intrinsic value of the Econet share if the required rate of return is 15%?

f.The expected dividend per share of Edgars is $5,00.The dividend is expected to grow at the rate of 6% per year.If the price per share now is $50,00, what is the expected rate of return?

g.The current dividend on an equity share of International Computers Ltd is $3,00.The present growth rate is 50%.However, this will decline linearly over a period of 10 years and then stabilise at 12%.What is the intrinsic value per share of International Computers Limited, if the investors require a return of 16%?

(25 marks)