Reference no: EM131652422

Part A -

1. K & A Company has a level-coupon bond outstanding that pays coupon interest of $100 per year and has 20 years to maturity. The face value of the bond is $1,000.  If the yield for similar bonds is currently 14%, what is the bond's current market value?

2. For the K&A Company bond described in Problem 1, find the bond's value if the yield for similar bonds decreases to 8%.

3. Suppose the K & A bond from Problem 1 paid interest semiannually.  What is its value if the yield is 14%?

4. A firm issues a bond today with a $1,000 face value, an 6% coupon interest rate, semiannual interest, and 20-year maturity.  An investor purchases the bond for $802.  What is the yield to maturity (YTM)?

5. Suppose the investor bought the bond described in the previous problem for $1,274.  What's the YTM?

Part B -

1. TTK Corp. preferred stock pays a $10 annual dividend per share.  What is the price of a share of TTK preferred if similar-risk preferred yields 8%?  What is the price if comparable preferred yields 11%?

2. A share of preferred stock with a $12 annual dividend is selling for $75.  What is the required rate of return for the preferred stock?

3. Hillard, Inc. just paid a $2 annual dividend on its common stock.  The dividend is expected to increase at 8% per year indefinitely.  If the required rate of return is 16%, what is the stock's value?

4. The dividend paid this year (Do) on a share of common stock is $10.  If dividends grow at a 5% rate for the foreseeable future, and the required return is 10%, what is the value of the stock today?  In year 11 (date t = 11)?

5. The current year's dividend (Do) for a share of common stock is $2 and the current price (Po) of the stock is $30.  Dividends are expected to grow at 5% forever.  What is the rate of return for this stock?