roblem Set $2$

$1)$ Queen and Bees, Inc. o$$ers a $7\%$ coupon bond with semi$-$annual payments and a yield to maturity of

$7\mathrm{.}73\%.$ The bonds mature in $9$ years. What is the market price of a $$1,000$ face value bond?

$2)$ A bond is listed in the Financial Post as $8\mathrm{.}800$ of September $22/25$ and is semi$-$annual. This bond pays

how much interest and when?

$3)$ The zero$-$coupon bonds of Quipta Inc. have a market price of $$394\mathrm{.}47,$ a face value of $$1,000,$ and a

yield to maturity of $6\mathrm{.}87\%.$ How many years is it un l this bond matures??

$4)$ All else constant, under what circumstances will a bond will sell at a premium or discount? Think

about coupon rate and the yield to maturity.

$5)$ A $12-$year, $5\%$ coupon bond pays interest annually. The bond has a face value of $$1,000.$ What is the

percentage change in the price of this bond if the market yield rises to $6\%$ from the current yield of

$4\mathrm{.}5\%?$

$6)$ Explain why some bond investors are subject to liquidity risk and$/$or default risk. How does each of

these risks a$$ect the yield of a bond?

$7)$ The net present value of a growth opportunity, NPVGO, can be defined as what?

$8)$ If the quoted dividend yield in the paper was $2\mathrm{.}2\%$ and the dividend was listed as $$0\mathrm{.}72$ what price is

used in the calcula on of dividend yield?

$9)$ What should be paid for Overland common stock? Overland has just paid a dividend of $$2\mathrm{.}25.$ These

dividends are expected to grow at a rate of $5\%$ in the foreseeable future. The required rate of return is

$11\%.($round to $2$ decimal places$)$

$10)$ Weisbro and Sons' common stock sells for $$21$ a share and pays an annual dividend that increases by

$5\%$ annually. The market rate of return on this stock is $9\%.$ What is the amount of the last dividend paid

by Weisbro and Sons?

$11)$ A stock you are interested in paid a dividend of $$1$ last month. The an cipated growth rate in

dividends and earnings is $25\%$ for the next $2$ years before se ling down to a constant $5\%$ growth rate.

The discount rate is $12\%.$ Calculate the expected price of the stock.

$12)$ What would be the maximum an investor should pay for the common stock of a firm that has no

growth opportuni es but pays a dividend of $$1\mathrm{.}36$ per year? The next dividend will be paid in exactly $1$

year. The required rate of return is $12\mathrm{.}5\%.$

$13)$ The Bell Weather Co$.$ is a new firm in a rapidly growing industry. The company is planning on

increasing its annual dividend by $20\%$ a year for the next four years and then decreasing the growth rate

to $5\%$ per year. The company just paid its annual dividend of $$1\mathrm{.}00$ per share. What is the current value

of one share if the required rate of return is $9\mathrm{.}25\%?$

$14)$ Assume that you are using the dividend growth model to value stocks. If you expect the market rate

of return to increase across the board on all equity securi es$,$ then you should also expect the market

values of all stocks to do what?

$15)$ Stand S ll Co$.$ has been earning $$1$ per share on $400,000$ shares and paying all earnings out. The cost

of capital for a company of this risk is $10\%.$ The company has an investment opportunity that costs

$$1,500,000$ and will earn $$230,000$ a er taxes per year. The company must reinvest $35\%$ of these

earnings to con nue the expansion. What is the value of the company without the investment and with

the investment?

$16)$ The closing price of a stock is quoted at $22\mathrm{.}87,$ with a P$/$E of $26$ and a net change of $1\mathrm{.}42.$ Based on

this informa on$,$ what does that tell us about earnings per share?

Research Problem

Find the website for the Toronto Stock Exchange $($TSX$).$ Then find the stock symbol for Canadian Na onal

Railways. Enter that symbol into the search sec on of the TSX webpage to bring up the company and

looking through the various tabs across the top, find and record the following on the day you are in the

site. Remember to provide a correct cita on for the site.

$1)$ Date you were collec ng the data

$2)$ Company Sector

$3)$ Company industry

$4)$ Stock Price that day

$5)$ Volume traded that day

$6)$ A synopsis of the company profile

$7)52$ week Hiigh low of the share

$8)50$ day moving average price

$9)$ Market Cap $($capitaliza on$)$

$10)$ Total shares and listed shares

$11)$ Debt$/$Equity Ra o

$12)$ Return on Equity and Assets

$13)$ Current Dividend and frequency

$14)$ Dividend Yield

$15)$ The $3$ and $5$ year dividend growth rates

$16)$ The Analyst price targets $($high$,$ average and low$)$

$17)$ Basic Earnings per share

$18)$ Diluted Earnings per share

$19)$ Earnings before interest and taxes

$20)$ Earnings before interest, taxes, depreciation and amortization