Exam 5: How to Value Bonds and Shares

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

Bill Bailey and Sons pays no dividend at the present time.The company plans to start paying an annual dividend in the amount of €.30 a share for two years commencing two years from today.After that time,the company plans on paying a constant €1 a share dividend indefinitely.Given a required return of 14%,what is the value of this equity?

The Lighthouse Co.is in a downsizing mode.The company paid a €2.50 annual dividend last year.The company has announced plans to lower the dividend by €.50 a year.Once the dividend amount becomes zero,the company will cease all dividends permanently.The required rate of return is 16%.What is one share of this equity worth?

Mortgage Instruments NV is expected to pay dividends of €1.03 next year.The company just paid dividends of €1.This growth rate is expected to continue.How much should be paid for Mortgage Instruments share just after the dividend if the appropriate discount rate is 5%.

Party Time 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%?

The Extreme Reaches Corp.last paid a €1.50 per share annual dividend.The company is planning on paying €3.00,€5.00,€7.50,and €10.00 a share over the next four years,respectively.After that the dividend will be a constant €2.50 per share per year.What is the market price of this equity if the market rate of return is 15%?

A number of publicly traded firms pay no dividends yet investors are willing to buy shares in these firms.How is this possible? Does this violate our basic principle of share valuation? Explain.

The Lo Sun Corporation offers a 6% bond with a current market price of €875.05.The yield to maturity is 7.34%.The face value is €1,000.Interest is paid semiannually.How many years is it until this bond matures?

The current yield on Alpha's ordinary equity is 4.8%.The company just paid a €2.10 dividend.The rumor is that the dividend will be €2.205 next year.The dividend growth rate is expected to remain constant at the current.What is the required rate of return on Alpha's equity?

The Red Bud Co.just paid a dividend of €1.20 a share.The company announced today that it will continue to pay this constant dividend for the next 3 years after which time it will discontinue paying dividends permanently.What is one share of this equity worth today if the required rate of return is 7%?

The Lory Company had net earnings of €127,000 this past year.Dividends were paid of €38,100 on the company's equity of €1,587,500.If Lory has 100,000 shares outstanding with a current market price of €11.625 per share,what is the required rate of return?

A corporate bond is quoted at a current price of 102.767.What is the market price of a bond with a €1,000 face value?

Next year's annual dividend divided by the current share price is called the:

Differential growth refers to a firm that increases its dividend by:

A zero coupon bond with a face value of €1,000 is issued with an initial price of €463.34.The bond matures in 25 years.What is the implicit interest,in euros,for the first year of the bond's life?

The yield to maturity is:

A General Co.bond has an 8% coupon and pays interest annually.The face value is €1,000 and the current market price is €1,020.50.The bond matures in 20 years.What is the yield to maturity?

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 share should be ____.

A zero coupon bond:

Which of the following amounts is closest to what should be paid for Overland ordinary equity? 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%.