Exam 5: How to Value Bonds and Shares

French Fortunes is preparing a bond offering with an 8% coupon rate.The bonds will be repaid in 10 years.The company plans to issue the bonds at par value and pay interest semiannually.Given this,which of the following statements are correct? I.The initial selling price of each bond will be €1,000. II.After the bonds have been outstanding for 1 year,you should use 9 as the number of compounding periods when calculating the market value of the bond. III.Each interest payment per bond will be €40. IV.The yield to maturity when the bonds are first issued is 8%.

Beaksley SA is a very cyclical type of business which is reflected in its dividend policy.The firm pays a €2.00 a share dividend every other year.The last dividend was paid last year.Five years from now,the company is repurchasing all of the outstanding shares at a price of €50 a share.At an 8% rate of return,what is this equity worth today?

The net present value of a growth opportunity,NPVGO,can be defined as:

BC 'n D just paid its annual dividend of €.60 a share.The projected dividends for the next five years are €.30,€.50,€.75,€1.00,and €1.20,respectively.After that time,the dividends will be held constant at €1.40.What is this equity worth today at a 6% discount rate?

Winston Enterprises has a 15-year bond issue outstanding that pays a 9% coupon.The bond is currently priced at €894.60 and has a par value of €1,000.Interest is paid semiannually.What is the yield to maturity?

The Merriweather Co.just announced that it will pay a dividend next year of €1.60 and is establishing a policy whereby the dividend will increase by 3.5% annually thereafter.How much will one share be worth five years from now if the required rate of return is 12%?

A share pays a constant annual dividend and sells for €31.11.If the dividend yield of this equity is 9%,what is the dividend amount?

The ordinary equity of Eddie's Engines,Inc.sells for €25.71 a share.The equity is expected to pay €1.80 per share next month when the annual dividend is distributed.Eddie's has established a pattern of increasing its dividends by 4% annually and expects to continue doing so.What is the market rate of return on this equity?

The zero coupon bonds of Markco 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?

A corporate bond with a face value of €1,000 matures in 4 years and has a 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?

Consider a bond which pays 7% semiannually and has 8 years to maturity.The market requires an interest rate of 8% on bonds of this risk.What is this bond's price?

Doctors-On-Call,a newly formed medical group,just paid a dividend of €.50.The company's dividend is expected to grow at a 20% rate for the next 5 years and at a 3% rate thereafter.What is the value of the share if the appropriate discount rate is 12%?

All else constant,a bond will sell at _____ when the yield to maturity is _____ the coupon rate.

The newly issued bonds of the Wynslow SA 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 equity valuation model that determines the current share price by dividing the next annual dividend amount by the excess of the discount rate less the dividend growth rate is called the _____ model.

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.

The bonds issued by Jensen & Son bear a 6% coupon,payable semiannually.The bond matures in 8 years and has a €1,000 face value.Currently,the bond sells at par.What is the yield to maturity?

Jackson Central has a 6-year,8% annual coupon bond with a €1,000 par value.Earls Enterprises has a 12-year,8% annual coupon bond with a €1,000 par value.Both bonds currently have a yield to maturity of 6%.Which of the following statements are correct if the market yield increases to 7%?

A share 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 share.

Now or Later recently paid €1.10 as an annual dividend.Future dividends are projected at €1.14,€1.18,€1.22,and €1.25 over the next four years,respectively.After that,the dividend is expected to increase by 2% annually.What is one share of this equity worth to you if you require an 8% rate of return on similar investments?