What price will the bond? trade

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Reference no: EM132666202

Halliford Corporation expects to have earnings this coming year of $3.22 per share. Halliford plans to retain all of its earnings for the next two years. For the subsequent two? years, the firm will retain 55% of its earnings. It will then retain 21% of its earnings from that point onward. Each? year, retained earnings will be invested in new projects with an expected return of 22.94% per year. Any earnings that are not retained will be paid out as dividends. Assume? Halliford's share count remains constant and all earnings growth comes from the investment of retained earnings. If? Halliford's equity cost of capital is 10.9%?, what price would you estimate for Halliford? stock?

?Note: Remenber that growth rate is computed? as: retention rate × rate of return.

Suppose a? seven-year, $1,000 bond with a 7.93% coupon rate and semiannual coupons is trading with a yield to maturity of 6.87%.

Problem a. Is this bond currently trading at a? discount, at? par, or at a? premuim? Explain.

Problem b. If the yield to maturity of the bond rises to 7.72% ?(APR with semiannual? compounding), at what price will the bond? trade?

Reference no: EM132666202

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