Finance Problems, Finance Basics

1.) Assume a $1000 face value bond has a coupon rate of 8.5 percent, pays interest semi-annually, and has an eight-year life. If investors are willing to accept a 10.25 percent rate of return on bonds of similar quality, what is the present value or worth of this bond?
2.) The Garcia Company’s bonds have a face value of $1000, will mature in ten years, and carry a coupon rate of 16 percent. Assume interest rates are made semi-annually.
A.) Determine the present value of the bonds cash flows if the required rate of return is 16.64 percent.
B.) How would your answer change if the required rate of return is 12.36 percent?
3.) Mercier Corporations stock is selling for $95. It has just paid a dividend of $5 a share. The expected growth rate in dividends is 8 percent.
A.) What is the required rate of return on this stock?
B.) Using your answer to (a), suppose Mercier announces developments occur that should lead to dividend increases of 10 percent annually. What will be the value of Mercier’s stock?
C.) Again using your answer to (a), suppose developments occur that leave investors expecting that dividends will not change from their current levels in the foreseeable future. Now what will be the value of Mercier stock?
D.) From your answers to (b) and (c), how important are investors expectation of future dividend growth to the current stock price?
Posted Date: 2/22/2013 9:58:29 PM | Location :

Related Discussions:- Finance Problems, Assignment Help, Ask Question on Finance Problems, Get Answer, Expert's Help, Finance Problems Discussions

Write discussion on Finance Problems
Your posts are moderated
Related Questions
Public Limited Companies These are joint stock companies that have sold shares to specific public and thus have attracted public money in form of share capital.  Those compani

I need a conclusion for my assignment for financial accounting vs management accounting

Conditions for Lease Finance Lease finance is ideal within the following circumstances: a) Whenever the asset depreciates faster. b) Whenever the asset is matter to obso

Compute the risk premium for the stock of Omega Tools if the risk free rate is 6%, the expected market return is 12%, and Omega's stock has a beta of .8.    Ome

The following is the existing capital structure of Company XYZ Ltd. Ordinary shares at Shs.10 par 1,000,000 Retained 800,000 12% preference shares Shs.10 par 400,000 16% loan Shs.1

Explain the meaning of Gross and Net Yield While gross yield refers to the yield realized by investor before paying taxes, net yield is what remains with him after paying th

Central Bank - Banking Institutions This is a bank which is entrusted along with the responsibility of keeping economic stability and financial soundness of a country.  Theref

Creditors Payment Period Ratio Creditors payment period =   365/ Creditors turnover                                           = (365 x Average creditors)/Annual credit pu

Capital Asset Pricing Model (CAPM) CAPM is a methods that is used to establish the required rate of return of an investment provided a particular level of risk.  According to