Exam 6: How to Value Bonds and Stocks

The zero coupon bonds of Quipta Inc. have a market price of $394.47, a face value of $1,000, and a yield to maturity of 6.87%. How many years is it until this bond matures?

The Double Dip Co. is expecting its ice cream sales to decline due to the increased interest in healthy eating. Thus, the company has announced that it will be reducing its annual dividend by 5% a year for the next two years. After that, it will maintain a constant dividend of $1 a share. Two weeks ago, the company paid a dividend of $1.40 per share. What is this stock worth if you require a 9% rate of return?

Firms with higher expected growth opportunities usually sell for:

Which of the following amounts is closest to what should be paid for Overland common stock? Overland has just paid a dividend of $2.25. These dividends are expected to grow at a rate of 5% in the foreseeable future. The required rate of return is 11%.

A consol:

A bond with a 7% coupon that pays interest semi-annually and is priced at par will have a market price of _____ and interest payments in the amount of _____ each.

Stand Still Co. has been earning $1 per share on 400,000 shares, and paying out all of the earnings. The discount rate for a company of this risk is 10%. The company has an investment opportunity with a cost of $1,500,000 and expects to earn $230,000 after taxes, but they must reinvest 35% of these earnings to continue to maintain the expansion in earnings. What is the value of the company without the investment and what is the value with the investment?

Given r₁ = .050 and r₂ = .054, what can you deduce about investor's expectations of future short-term interest rates if the expectations hypothesis is correct?

Gugenheim, Inc. offers a 7% coupon bond with annual payments. The yield to maturity is 5.85% and the maturity date is 9 years. What is the market price of a $1,000 face value bond?

The coupon of a bond is:

Term structure refers to:

Queen and Bees, Inc. offers a 7% coupon bond with semiannual payments and a yield to maturity of 7.73%. The bonds mature in 9 years. What is the market price of a $1,000 face value bond?

Shares of common stock of the Samson Inc. offer an expected total return of 12%. The dividend is increasing at a constant 8% per year. The dividend yield must be:

The value of common stock today depends on:

The average Japanese P/E ratio was reported as between 40 and 100 in recent years while the average U.S. P/E ratio was 25. The reason for the higher Japanese P/E ratio has been partially explained by:

What can you deduce about forward rates of interest if the liquidity-preference hypothesis of the term structure is correct?

The dividend growth rate is equal to the product of what two ratios?

The value of a 20 year zero-coupon bond when the market required rate of return of 9% (semi-annual) is:

Part of the Rock, Inc. has a 6% coupon bond that matures in 11 years. The bond pays interest semiannually. What is the market price of a $1,000 face value bond if the yield to maturity is 12.9%?

Zero-coupon bonds: