What was the original issue price

Assignment Help Other Subject
Reference no: EM131255800

Assignment -

Remember, you must show your calculations to receive credit. To show how you calculated an answer using the time value functions on your calculator, you may show this as the text does on page 258 on the bottom left. For example when solving for the FV, you may show this as:

N = 4

I/Y = 10

PV = -1,000

PMT = 0

Solve for (CPT)FV = $1,464.10

To solve these time value problems, you may use any of 3 methods. You may use the appendices at the back of the textbook (these are also provided in the Course Information tab in Blackboard), you may use the formulas in the text, or you may use the time value functions on your calculator. I strongly recommend that you use one method and check your work using another method (keeping in mind that the appendices have factors that are rounded off and your answers using the appendices will be slightly different than using the formulas or the calculator time value functions).

Problems -

1. What is the present value of:

a. $80,000 in 10 years at 6 percent?

b. $106,000 in 5 years at 10 percent?

c. $250,000 in 15 years at 8 percent?

2. If you invest $20,000 today, how much will you have:

a. In 5 years at 10 percent?

b. In 10 years at 10 percent?

c. In 20 years at 10 percent?

d. In 20 years at 10 percent (compounded semiannually)?

3. How much would you have to invest today to receive:

a. $120,000 in 6 years at 8 percent?

b. $150,000 in 15 years at 8 percent?

c. $15,000 each year for 5 years at 6 percent?

d. $40,000 each year for 20 years at 6 percent?

4. Bobbie Cohen will receive $ 250,000 in 30 years from a fund her parents have established to help her in her retirement years. Her friends are very jealous of her. If the funds are discounted back at a rate of 9 percent, what is the present value of her future "pot of gold"?

5. Boots Adams will receive $250,000 per year for the next 10 years as a payment for a weapon he invented. If a 6 percent rate is applied, should he be willing to sell out his future rights now for $1,750,000?

6. Your grandfather has offered you a choice of one of the three following alternatives: $6,500 now; $1,000 a year for eight years; or $12,000 at the end of eight years. Assuming you could earn 7 percent annually, which alternative should you choose? If you could earn 11 percent annually, would you still choose the same alternative?

7. The Baywatch Stars Company has $1,000 par value bonds outstanding at 8 percent interest. The bonds will mature in 20 years. Compute the current price of the bonds if the present yield to maturity is:

a. 6 percent.

b. 8 percent.

c. 12 percent.

8. Bloat Biochemical Co. has a $1,000 par value bond outstanding that pays 6 percent annual interest. The current yield to maturity on such bonds in the market is 5 percent. Compute the price of the bonds for these maturity dates:

a. 30 years.

b. 15 years.

c. 1 year.

Rhetorical Question: Do you see the impact of interest rates on the value in problem 7 and the impact of the time-to-maturity on the value in problem 8?

9. Mr. Bunker calls his broker to inquire about purchasing a bond of Golden Years Recreation Corporation. His broker quotes a price of $1,370 which includes a $25 stated broker's fee. He is concerned that the bond might be overpriced based on these facts. The $ 1,000 par value bond pays 10 percent interest, and it has 20 years remaining until maturity. The current yield to maturity on similar bonds is 7 percent.

Do you think the bond is overpriced? Do the necessary calculations.

10. The preferred stock of Berryville State Bank pays an annual dividend of $7.50. It has a required rate of return of 8 percent. Compute the price of the preferred stock.

11. Busch, Inc. issued preferred stock many years ago. It carries a fixed dividend of $100 per share. With the passage of time, yields have gone down from the original 11 percent to 7 percent (yield is the same as required rate of return).

a. What was the original issue price?

b. What is the current value of this preferred stock?

12. As of January 1, 2016, BancorpNorth has had the following pattern of earnings per share over the last five years:

Year             Earnings per Share

2011                    $4.00

2012                      4.20

2013                      4.41

2014                      4.63

2015                      4.86

The earnings per share have grown at a constant rate (on a rounded basis) and will continue to do so in the future. Dividends represent 20 percent of earnings. Project earnings and dividends for the next year (2016).

a. If the required rate of return (Ke ) is 10 percent, what is the anticipated stock price (P0) at the beginning of 2016 using formula 10-8 on page 313?

b. If the P/E is 16, what is the anticipated stock price?

c. Which valuation makes more sense to you? Why?

Reference no: EM131255800

Questions Cloud

How much heat must be generated at the welding source : How much heat must be generated at the welding source, if the heat transfer factor = 0.9 and the melting factor = 0.7?
Provide with a multifactor measure of last years performance : Average labor cost last year was $20 per hour, kits cost $1,000 each, and energy costs were $3 per kilowatt-hour. What do you tell Mr. Munson?
Write an essay on how you can or are able to recycle : Write an essay on how You can or are able to recycle. You do not have to recycle all the items listed above, simply indicate what you can or are doing now while in school. This essay is an important part of this assignment.
What did you learn from your classmate posting : Explain how foreign medical education programs for physicians are accredited. How do foreign medical education programs for physicians compare to medical education programs in the United States? How do the differences impact the quality and cost of h..
What was the original issue price : Busch, Inc. issued preferred stock many years ago. It carries a fixed dividend of $100 per share. With the passage of time, yields have gone down from the original 11 percent to 7 percent (yield is the same as required rate of return). What was th..
Find the rate of heat generated at the welding source : An axle-bearing surface made of high carbon steel has worn beyond its useful life. When it was new, the diameter was 4.00 in. In order to restore it, the diameter was turned to 3.90 in to provide a uniform surface.
What do the terms arc-on time and arc time mean : Why is the heat transfer factor in arc-welding processes that utilize consumable electrodes greater than in those that use no consumable electrodes?
Describing the different types of firewalls : Compose a letter to your CEO describing the different types of firewalls and where each should be used/deployed within the Hypothetical Fortune 500 network. This is a minimum 2-page paper with references
Determine the rate of heat generation : Assume the cross section of the weld bead approximates a right isosceles triangle with a leg length of 4.5 mm, the heat transfer factor is 0.80, and the melting factor is 0.58. Determine the rate of heat generation required at the welding source t..

Reviews

Write a Review

Other Subject Questions & Answers

  Laid down rules in the discharge of duties

In 2-3 pages answer the following: Do you think that public administrators should be restricted to only laid down rules in the discharge of their duties as espoused by Max Weber or should they have some amount of discretion.

  The kyoto protocol

The Kyoto Protocol - What was it? Who signed this protocol, and who didn't? What are some results, positive and/or negative, that the Kyoto Protocol has had?

  Benefits of social media

How can social media such as Linked In, Facebook, and Twitter be used to improve knowledge sharing, build social capital, support innovation, and aid problem-solving in one of the following organisationalcontexts?

  Brief review on christianity

Give and account of Christ like living from 1st Peter 1. How do we live as God's people? 1st Peter 2. How do we live in right relationship? 1st Peter 3.

  Challenges of fishing and aquaculture

Compare the benefits and challenges of fishing and aquaculture. Which approach has a greater impact on the environment? Justify your answer.

  Administrator of a small medical clinic

You are the administrator of a small medical clinic and need to create a governing board with at least five members. Who would you contact in your community to join your governing board and why did you choose them?

  Discuss what the progressive approach to discipline

Discuss what the Progressive Approach to discipline, the Positive Approach to discipline, and the GAP approach are all about. What do you see as the essential elements (commonalities) of these approaches? Do any of these approaches give you concerns ..

  Select of two topics below and write 3 page essay which

choose on of the two topics below and write a 3 page essay that addresses the following question. be sure to use times

  What are the authentic websites about the frontiers

What are the authentic websites about the frontiers of the medical research? By the way, it had better be Chinese.

  Q1 under what circumstances will a court allow one or more

q1. under what circumstances will a court allow one or more of the parties to a contract to walk away or not perform

  How would this change impact the demand for feeders

Assume that the number of sellers decreases in this market. What would happen in this market? Explain your answer and reconstruct the graph developed in question one to show this change.

  Explain the potential effects

Explain and evaluate two mandated or proposed policies from the Centers for Medicare and Medicaid (C.M.S.) or any other branch of the U.S. Department of Health and Human Services, Describe the policies and explain the potential effects. Is the effe..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd