Question
Suppose you purchase a 10-year bond with 6% annual coupons and $100 face value. You hold the bond for four years, and sell it immediately
Suppose you purchase a 10-year bond with 6% annual coupons and $100 face value. You hold the bond for four years, and sell it immediately after receiving the fourth coupon. If the bonds yield to maturity was 5% when you purchased and sold the bond,
- What is the initial price of the bond when you buy it?
- ) What is the price at which you sell the bond?
XYZ Company has just paid an annual dividend of $0.96. Analysts are predicting an 11% per year growth rate in earnings over the next five years. After that, XYZs earnings are expected to grow at the current industry average of 5.2% per year. If XYZs equity cost of capital is 8.5% per year and its dividend payout ratio remains constant, what price does the dividend-discount model predict XYZ stock should sell for?
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