Exam 6: How to Value Bonds and Stocks

A corporate bond with a face value of $1,000 matures in 4 years and has an 8% coupon paid at the end of each year. The current price of the bond is $932. What is the yield to maturity for this bond?

Define what is meant by interest rate risk. Assume you are the manager of a $100 million portfolio of corporate bonds and you believe interest rates will fall. What adjustments should you make to your portfolio based on your beliefs?

Which of the following values is closest to the amount that should be paid for a stock that will pay a dividend of $10 one year from now and $11 two years from now? The stock will be sold in 2 years for an estimated price of $120. The appropriate discount rate is 9%.

The newly issued bonds of the Cain Corp. offer a 6% coupon with semiannual interest payments. The bonds are currently priced at par value. The effective annual rate provided by these bonds must be:

The discount rate in equity valuation is composed entirely of:

The closing price of a stock is quoted at 22.87, with a P/E of 26 and a net change of 1.42. Based on this information, which one of the following statements is correct?

A level coupon bond:

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 risk of this company suggests that future cash flows should be discounted at a rate of 11%.

The term structure can be described as the:

A 12-year, 5% coupon bond pays interest annually. The bond has a face value of $1,000. What is the percentage change in the price of this bond if the market yield rises to 6% from the current yield of 4.5%?

The Bell Weather Co. is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 20% a year for the next four years and then decreasing the growth rate to 5% per year. The company just paid its annual dividend in the amount of $1.00 per share. What is the current value of one share if the required rate of return is 9.25%?

The liquidity preference hypothesis explains that the 2^nd year forward rates are set higher than the expected spot rate over year two because:

Suppose that there are three zero coupon bonds with maturity date 1 year, 2 year and 3 year respectively. The current price of the 1 year, 2 year and 3 year bonds respectively are $826.45, $718.18 and $640.66 respectively. The yield to maturity of the first year bond is:

A stock you are interested in paid a dividend of $1 last month. The anticipated growth rate in dividends and earnings is 25% for the next 2 years before settling down to a constant 5% growth rate. The discount rate is 12%. Calculate the expected price of the stock.

Which of the following amounts is closest to the value of a bond that pays $55 semiannually and has an effective semiannual interest rate of 5%? The face value is $1,000 and the bond matures in 3 years. There are exactly six months before the first interest payment.

The Felix Corp. projects to pay a dividend of $.75 next year and then have it grow at 12% for the following 3 years before growing at 8% indefinitely thereafter. The equity has a required return of 10% in the market. The price of the stock should be ___.

Suppose that a bond that will mature in three years is now traded at $99.83. The annual coupon payment is $5.635. Its yield to maturity is

The P/E ratio is a multiple of earnings that investors pay for a stock. The P/E is __________ related to growth, __________ related to the discount rate, and __________ related to the stock's risk.

Weisbro and Sons common stock sells for $21 a share and pays an annual dividend that increases by 5% annually. The market rate of return on this stock is 9%. What is the amount of the last dividend paid by Weisbro and Sons?

Spot rates are the interest rates that prevail in the market from: