Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

S 1. Calculate the present value (PV) of a cash inflow of $500 in one year and a cash inflow of $1,000 in five years,

S 1. Calculate the present value (PV) of a cash inflow of $500 in one year and a cash inflow of $1,000 in five years, assuming a discount rate of 15 percent. 2. Calculate the present value (PV) of an annuity stream of five annual cash flows of $1,200, with the first cash flow received in one year, assuming a discount rate of 10 percent. 3. What is the present value of a perpetual stream of annual cash flows of $100, with the first cash flow to be received in one year, assuming a discount rate of 8 percent? 4. What is the present value of a perpetual stream of annual cash flows, with the first cash flow of $100 to be received in one year and with all subsequent cash flows growing at a rate of 3 percent, assuming a discount rate of 8 percent? 5. Consider two bonds, Bond A and Bond B, both with a coupon rate of 10 percent and a yield to maturity of 10 percent. These are standard bonds with semian- nual coupon payments. Bond A matures in 5 years; Bond B matures in 10 years. What is the price of each bond? 6. Consider the bonds in question 5. Suppose interest rates decline, causing the yield to maturity for each bond to immediately decline to 9 percent. What is the new price of each bond? (Hint: Consider the semiannual yield to maturity.) 150 Part 2 Assessing Future Financial Needs 7. Consider two bonds, Bond C and Bond D, both with a yield to maturity of 10 percent and with 5 5 years to maturity. These are standard bonds with semiannual coupon payments. Bond C has a coupon rate of 10 percent (with semiannual coupon payments); Bond D does not pay any coupons (i.e., it a zero-coupon bond). What is the price of each bond? 8. Consider the bonds in question 7. Suppose interest rates decline, causing the yield to maturity for each bond to immediately decline to 9 percent. What is the new price of each bond? (Hint: Consider the semiannual yield to maturity.) 9. Suppose a preferred share pays perpetual quarterly dividends of $1.00 and has a per annum dividend yield of 8 percent. What is the fair value of this preferred share? 10. What is the fair value today of a common share with expected annual dividends of $1.00, $1.05, and $1.10 in each of the next three years and an expected share price of $20 in three years, assuming a required return of 9 percent? 11. What is the value of a common share with an expected perpetual stream of annual dividends, with the first dividend of $2.00 to be received in one year and with all subsequent dividends growing at a rate of 5 percent, assuming a required rate of return of 12 percent

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Acca Financial Reporting

Authors: BPP Learning Media

1st Edition

1509784888, 978-1509784882

More Books

Students also viewed these Accounting questions

Question

Explain methods of metal extraction with examples.

Answered: 1 week ago