Exam 5: How to Value Bonds and Shares

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%?

Fred Flintlock wants to earn a total of 10% on his investments.He recently purchased shares of ABC equity at a price of €20.The share pays a €1 a year dividend.The price of ABC shares need to _____ if Fred is to achieve his 10% rate of return.

A bond that makes no coupon payments and is initially priced at a deep discount is called a _____ bond.

The constant dividend growth model: I.assumes that dividends increase at a constant rate forever. II.can be used to compute a share price at any point of time. III.states that the market price of a share is only affected by the amount of the dividend. IV.considers capital gains but ignores the dividend yield.

How much are you willing to pay for one share of equity if the company just paid an €.80 annual dividend,the dividends increase by 4% annually and you require an 8% rate of return?

Angelina's made two announcements concerning its equity today.First,the company announced that its next annual dividend has been set at €2.16 a share.Secondly,the company announced that all future dividends will increase by 4% annually.What is the maximum amount you should pay to purchase a share of Angelina's share if your goal is to earn a 10% rate of return?

The value of a 20 year zero-coupon bond when the market required rate of return of 9% (semiannual)is ____.

The ordinary equity of Grady had an 11.25% rate of return last year.The dividend amount was €.70 a share which equated to a dividend yield of 1.5%.What was the rate of price appreciation on the equity?

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

A bond is listed as a 12 3/4s of July 2009.This bonds pays:

You have decided that you would like to own some shares of GH NV but need an expected 12% rate of return to compensate for the perceived risk of such ownership.What is the maximum you are willing to spend per share to buy GH equity if the company pays a constant €3.50 annual dividend per share?

Leslie's Unique Clothing Stores offers a share that pays an annual dividend of €2.00.The company has promised to maintain a constant dividend.How much are you willing to pay for one share if you want to earn 12% return on your equity investments?

NU YU announced today that it will begin paying annual dividends.The first dividend will be paid next year in the amount of €.25 a share.The following dividends will be €.40,€.60,and €.75 a share annually for the following three years,respectively.After that,dividends are projected to increase by 3.5% per year.How much are you willing to pay to buy one share of this equity if your desired rate of return is 12%?

One basis point is equal to:

Scott SpA has a general dividend policy whereby it pays a constant annual dividend of €1 per share of.The firm has 1,000 shares outstanding.The company:

What are the components of the required rate of return on a share of equity? Briefly explain each component.

Turnips and Parsley ordinary equity sells for €39.86 a share at a market rate of return of 9.5%.The company just paid its annual dividend of €1.20.What is the rate of growth of its dividend?

Zeta Corporation has issued a €1,000 face value zero-coupon bond.Which of the following values is closest to the correct price for the bond if the appropriate discount rate is 4% and the bond matures in 8 years?

Face value is:

All else constant,a coupon bond that is selling at a premium,must have: