Questions for assignment 4 What is the value of a common stock that pays an annual dividend of $4 share, which is expected grow at 3 when the investor's rate of return is 10 What is the value of a preferred stock that pays an annual dividend of $4 share, when the investor's rate of return is 10 If the dividend of a stock is expected to grow for only three years at 6 annually and then 7 annually thereafter Furthermore, assume that the investor's required rate of return has now changed to 9 , and the dividend is $2 00, what would expect the intrinsic value of the stock Patricia owns 100 shares of blue stock, which has a current market price of $150 She also owns 300 shares of red stock, which has a current market price of $5 If Blue Corporation undergoes a 2 for 1 stock split and Red Corporation undergoes a 1 for 3 reverse stock split, which row would correctly identify Patricia's holdings Blue Red shares Value of shares shares Value of shares a 100 $7,500 300 $3,000 b 200 $15,000 100 $1,500 c 200 $15,000 900 $1,500 d 50 $7,500 900 $4,500 A bond is pays a coupon rate of 10 and the market is 7 , what is the intrinsic value of the bond What is the value of the bond quoted as 107 what is the value value of a T bill that pays 20 discount A bond that is to mature in 5 years pays 5 coupon rate when the market interest rate is 7 What is the value of the bond If ABC company stock was trading at $70 per share and its convertible bond had a conversion ratio of 15, what is the conversion value of the convertible bond NB Conversion value conversion ratio x market price of common stock Bond RFP was issued at par 3 years ago and will mature 5 years from now The bond has a coupon of 7 (paid semiannually) and is currently selling at $1060 Bond RFP may be called 5 years after issuance for price of $1,100 Based on this information, which of the following statements is correct Interest rates have risen since bond RFP was issued For purchasers of the bond today, the YTC will exceed YTC as of the date of issuance For purchasers of the bod today, the YTC will be less than the YTM For initial purchasers of the bond, the YTM was greater than the YTC Jerry Roberts purchased a 30 year junk bond for $977 36 with a stated coupon rate of 8 5 what is the YTM for this bond if Jerry receives semiannual coupon payments and experts to hold the bond to maturity 4 36 5 68 8 71 8 93 Dawn is a 28 federal marginal income tax bracket and resides in state with a flat a 5 state income tax rate She has $50,000 to invest and wants to invest the entire sum in a single bond issue Which bond should he choose Taxable corporate bond, with a rate of 6 Another state's municipal bond, with a rate of 5 Her state's municipal bond, a rate of 3 Her state's municipal bond, with a rate of 4 Answer B Explanation The other state's municipal bond will generate their highest after tax yield of 4 75 for Cheryl, calculated as follows 5 x (1 0 05) 5 x 0 95 4 75 The after tax yield for the taxable corporate bond is only 4 02 , or 6 x (1 0 33) A share of wells Fargo stock is paid a dividend of $3 share which is expected to grow at 2 annually If the investor paid $1 for every share purchased at $40 and has 5 required rate of return, what is the cost of common stock equity of this share A share of wells Fargo preferred stock is paid a dividend of $3 share If the investor paid $1 for every share purchased at $36 and has 6 required rate of return, what is the cost of preferred stock equity of this share Jerry Roberts purchased a 30 year junk bond for $977 36 with a stated coupon rate of 8 5 What is the cost of debt for this bond if Jerry receives semiannual coupon payments and expects to hold the bond to maturity and has a 20 tax rate

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Questions for assignment 4 What is the value of a common stock that pays an annual dividend of $4/share, which is expected grow at 3%

Questions for assignment 4

What is the value of a common stock that pays an annual dividend of $4/share, which is expected grow at 3% when the investor's rate of return is 10%?

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What is the value of a preferred stock that pays an annual dividend of $4/share, when the investor's rate of return is 10%?

If the dividend of a stock is expected to grow for only three years at 6% annually and then 7% annually thereafter. Furthermore, assume that the investor's required rate of return has now changed to 9%, and the dividend is $2.00, what would expect the intrinsic value of the stock?

Patricia owns 100 shares of blue stock, which has a current market price of $150. She also owns 300 shares of red stock, which has a current market price of $5. If Blue Corporation undergoes a 2-for-1 stock split and Red Corporation undergoes a 1-for-3 reverse stock split, which row would correctly identify Patricia's holdings?

Blue

Red

# shares

Value of shares

#shares

Value of shares

100

$7,500

300

$3,000

200

$15,000

100

$1,500

200

$15,000

900

$1,500

$7,500

900

$4,500

A bond is pays a coupon rate of 10% and the market is 7%, what is the intrinsic value of the bond?

What is the value of the bond quoted as 107?

what is the value value of a T-bill that pays 20% discount?.......................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................
A bond that is to mature in 5 years pays 5% coupon rate when the market interest rate is 7%. What is the value of the bond?

If ABC company stock was trading at $70 per share and its convertible bond had a conversion ratio of 15, what is the conversion value of the convertible bond?

NB: Conversion value = conversion ratio x market price of common stock

Bond RFP was issued at par 3 years ago and will mature 5 years from now. The bond has a coupon of 7% (paid semiannually) and is currently selling at $1060. Bond RFP may be called 5 years after issuance for price of $1,100. Based on this information, which of the following statements is correct?
Interest rates have risen since bond RFP was issued
For purchasers of the bond today, the YTC will exceed YTC as of the date of issuance
For purchasers of the bod today, the YTC will be less than the YTM
For initial purchasers of the bond, the YTM was greater than the YTC
Jerry Roberts purchased a 30-year junk bond for $977.36 with a stated coupon rate of 8.5%. what is the YTM for this bond if Jerry receives semiannual coupon payments and experts to hold the bond to maturity
4.36%
5.68%
8.71%
8.93%

Dawn is a 28% federal marginal income tax bracket and resides in state with a flat a 5% state income tax rate. She has $50,000 to invest and wants to invest the entire sum in a single bond issue. Which bond should he choose?
Taxable corporate bond, with a rate of 6%
Another state's municipal bond, with a rate of 5%
Her state's municipal bond, a rate of 3%
Her state's municipal bond, with a rate of 4%

Answer: B

Explanation: The other state's municipal bond will generate their highest after-tax yield of 4.75% for Cheryl, calculated as follows: 5% x (1-0.05). 5% x 0.95 = 4.75%. The after-tax yield for the taxable corporate bond is only 4.02%, or 6% x (1 - 0.33).

A share of wells Fargo stock is paid a dividend of $3/share which is expected to grow at 2% annually. If the investor paid $1 for every share purchased at $40 and has 5% required rate of return, what is the cost of common stock equity of this share?

A share of wells Fargo preferred stock is paid a dividend of $3/share. If the investor paid $1 for every share purchased at $36 and has 6% required rate of return, what is the cost of preferred stock equity of this share?

Jerry Roberts purchased a 30-year junk bond for $977.36 with a stated coupon rate of 8.5%. What is the cost of debt for this bond if Jerry receives semiannual coupon payments and expects to hold the bond to maturity and has a 20% tax rate?