Calculate the value of bond

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Reference no: EM13331722

Given the following information for the stock of FosterCompany,calculate its beta.

Current price per share of common Rs.80.00

Expected dividend per share next year Rs.5.00

Constant annual dividend growth rate 7%

Risk free rate of return 6%

Return on market portfolio 10%

ABC Company is considering investing in either of thetwooutstanding bonds. Both bonds have Rs.2,000 par values and10%coupon interest rates and pay annual interests. Bond A hasexactly3 years to maturity, and bond B has 5 years tomaturity.

a) Calculate the value of bond A if the required rate of returnis14%.

b) Calculate the value of bond B if the required rate of returnis14%.

c) If ABC wants to minimize the Interest Rate Risk, whichbondshould be purchased? Why.

Reference no: EM13331722

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