Exam 6: How to Value Bonds and Stocks

The closing price of a stock 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?

The newly issued bonds of the Cain Corp.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:

If a company is currently paying $.40 in dividends and they are expected to grow at 7% for the next 6 years and then grow at 4% thereafter the dividend expected in year 8 is:

Part of the Rock,Inc.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 discount rate in equity valuation is composed entirely of:

The term structure can be described as the:

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

What can you deduce about forward rates of interest if the liquidity-preference hypothesis of the term structure is correct?

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.

Zero-coupon bonds:

The average Japanese P/E ratio was reported as between 40 and 100 in recent years while the average U.S.P/E ratio was 25.The reason for the higher Japanese P/E ratio has been partially explained by:

The discount rate can be thought of as the sum of what two parts?

What would be the maximum an investor should pay for the common stock 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 common stock sells for $21 a share and pays an annual dividend that increases by 5% annually.The market rate of return on this stock is 9%.What is the amount of the last dividend paid by Weisbro and Sons?

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 stock valuation? Explain.

Spot rates are the interest rates that prevail in the market from:

The Double Dip Co.is expecting its ice cream sales to decline due to the increased interest in healthy eating.Thus,the company has announced that it will be reducing its annual dividend by 5% a year for the next two years.After that,it will maintain a constant dividend of $1 a share.Two weeks ago,the company paid a dividend of $1.40 per share.What is this stock worth if you require a 9% rate of return?

The value of common stock today depends on:

A consol:

Your firm offers a 10-year,zero coupon bond.The yield to maturity is 8.8%.What is the current market price of a $1,000 face value bond?