Reference no: EM132607453
1. Nat-T-Cat Industries just went public. As a growing firm, it is not expected to pay a dividend for the first five years. After that, investors expect Nat-T-Cat to pay an annual dividend $1.00 per share (i.e., D6 = 1.00), with no growth.
(a.) If the required return is 10%, what is the current stock price?
(b.) If the current market price for this stock is $ 14, would you like to invest it ?
2. A bond pays $80 per year in interest (8% coupon). The bond has 5 years before it matures at which time it will pay $1,000.
(a.) Assuming a discount rate of 10%, what should be the price of the bond?
(b.) Assuming a discount rate of 10%, however the compounding frequency is semi-annually, should the price be higher or lower than that in question (a)? Why? Without calculation.
What are the answers of the above questions?