Exam 3: Valuing Bonds and Valuing Stocks

You estimate the following cash flows for Nick's Incorporated: D₁=$0.83, D₂=$0.87, D₃=$0.96, and P₃=$27.40. If the required return to hold Nick's stock is 15.1%, what is the price today for Nick's stock?

The real return is 10% and the expected rate of inflation is 4.5%. What is the nominal rate?

ABC Corporation ABC Corporation just paid a dividend of $1.50 a share. The dividend is expected to grow at 10% a year for the next 2 years, and the 5% per year thereafter. The required return to invest in ABC stock is 12.50%. -What is the intrinsic value (or current price) of ABC?

You just bought a 5-year zero coupon bond with a $1,000 face value for $735.67. What is the taxable capital gain on this bond next year?

You notice that the price of a 4.0% coupon, 12-year Treasury Note is priced at 90:16 in the Wall Street Journal. What is the bond's yield to maturity?

For the zero growth model:

Bavarian Sausage's enterprise value is $75,000,000, the market value of its debt is $23,000,000 and the market value of its preferred stock is $5,000,000. If the company has 3,500,000 shares outstanding, what should be Bavarian Sausage's stock price?

Which of the following statements are CORRECT? Statement I: A change in a bond's interest rate risk has a greater price impact on bonds with longer maturities. Statement II: Government bonds have lower default risk than corporate bonds or municipal bonds. Statement III: Trading volume is greater for corporate bonds than government bonds.

Kramerica, Inc. Kramerica Inc. just paid its investors a dividend of $2.00. This growing company expects dividends to grow at 20% for the next 2 years. After year 2, dividends are expected to grow constantly at 5% per year. Investors require a 15% return on Kramerica stock. -What is the equation to price Kramerica stock?

A bond pays $60 interest payments twice a year. What is the coupon rate for the bond if the par value of the bond is $1,000?

Miller Juice Miller Juice is a young company that currently does not pay a dividend. The company retains all their earnings to finance their growth. However, ten years from now the company is expected to start paying a $1.50 dividend. According to research reports the dividend should then grow by 5% annually forever. -If the required return on the stock investment is 13%, what should be Miller's stock price today?

ABC Corporation ABC Corporation just paid a dividend of $1.50 a share. The dividend is expected to grow at 10% a year for the next 2 years, and the 5% per year thereafter. The required return to invest in ABC stock is 12.50%. -What is the expected dividend for ABC in year 2?

You just bought a 5-year zero coupon bond with a $1,000 face value for $735.67. What is the yield to maturity of this bond?

Undetermined Corporation currently has a 10% weighted average cost of capital. It is concerned that its after-tax cost of debt will increase in the near future by 2%. If Undetermined finances its projects with 30% debt, then what will the new weighted average cost of capital for Undetermined be?