Exam 5: How to Value Bonds and Shares

A brand with semi-annual interest payments,all else equal,would be priced _________ than one with annual interest payments.

The share price today depends on:

The discount rate in equity valuation is composed entirely of:

The MerryWeather Firm wants to raise €10 million to expand its business.To accomplish this,it plans to sell 30-year,€1,000 face value zero-coupon bonds.The bonds will be priced to yield 6%.What is the minimum number of bonds it must sell to raise the €10 million it needs?

A form of equity which receives no preferential treatment in either the payment of dividends or in bankruptcy distributions is called a(n)_____ share.

B&K Enterprises will pay an annual dividend of €2.08 a share on its ordinary equity next year.Last week,the company paid a dividend of €2.00 a share.The company adheres to a constant rate of growth dividend policy.What will one share of B&K ordinary equity be worth ten years from now if the applicable discount rate is 8%?

Martin's Yachts has paid annual dividends of €1.40,€1.75,and €2.00 a share over the past three years,respectively.The company now predicts that it will maintain a constant dividend since its business hased off and sales are expected to remain relatively constant.Given the lack of future growth,you will only buy this equity if you can earn at least a 15% rate of return.What is the maximum amount you are willing to pay to buy one share today?

The ordinary equity of Energizer's pays an annual dividend that is expected to increase by 10% annually.The equity commands a market rate of return of 12% and sells for €60.50 a share.What is the expected amount of the next dividend to be paid on Energizer's ordinary equity?

An asset characterized by cash flows that increase at a constant rate forever is called a:

Majestic Homes share traditionally provides an 8% rate of return.The company just paid a €2 a year dividend which is expected to increase by 5% per year.If you are planning on buying 1,000 shares next year,how much should you expect to pay per share if the market rate of return for this type of security is 9% at the time of your purchase?

Martha's Vineyard recently paid a €3.60 annual dividend on its ordinary equity.This dividend increases at an average rate of 3.5% per year.The share is currently selling for €62.10.What is the market rate of return?

What would be the maximum an investor should pay for the ordinary equity of a firm that has no growth opportunities but pays a dividend of €1.36 per year? The next dividend will be paid in exactly 1 year.The required rate of return is 12.5%.

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

The market price of a bond is equal to the present value of the:

Lee Hong Imports paid a €1.00 per share annual dividend last week.Dividends are expected to increase by 5% annually.What is one share worth to you today if the appropriate discount rate is 14%?

The closing share price 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?

Wilbert's Clothing Stores just paid a €1.20 annual dividend.The company has a policy whereby the dividend increases by 2.5% annually.You would like to purchase 100 shares in this firm but realize that you will not have the funds to do so for another three years.If you desire a 10% rate of return,how much should you expect to pay for 100 shares when you can afford to buy this equity? Ignore trading costs.

Latcher AB is a relatively new firm that is still in a period of rapid development.The company plans on retaining all of its earnings for the next six years.Seven years from now,the company projects paying an annual dividend of €.25 a share and then increasing that amount by 3% annually thereafter.To value this equity as of today,you would most likely determine the value of the share _____ years from today before determining today's value.

The Robert Phillips Co.currently pays no dividend.The company is anticipating dividends of €0,€0,€0,€.10,€.20,and €.30 over the next 6 years,respectively.After that,the company anticipates increasing the dividend by 4% annually.The first step in computing the value of this equity today,is to compute the value of the share when it reaches constant growth in year:

The total rate of return earned on a share is comprised of which two of the following? I.current yield II.yield to maturity III.dividend yield IV.capital gains yield