Business Finance FIN 3200

[Show all work including time lines for full credit]

1. Mr. Bond is considering purchasing a bond with 10-year maturity and $1,000 face value.
   The coupon interest rate is 8% and the interest is paid annually. If Mr. Bond requires 12%
   yield to maturity on the investment, then, what is price of the bond ?

2. Mr. Bond II has just purchased a 5‑year, $1,000 par value bond. The coupon rate on this bond is 12%,
   and the interest is paid annually. If you expect to earn a 10 percent yield to maturity on this bond, how much did he pay for it?

3. 10-year, 12% coupon bond that pays interest annually is currently selling for $1,083.
   What is the yield to maturity of the bond?      [The face value of the bond is $1,000]

4. A 3-year bond with 10% coupon rate and $1000 face value has yield to maturity of 8%

(APR).  Assuming annual interest payments, calculate the price of the bond.

5. A four-year bond has an 8% coupon rate and a face value of $1000. If the current price of the bond is $870.51,

calculate the yield to maturity of the bond (assume annual interest payments).

Also, indicate whether the bond is a discount bond or a premium bond or a par bond.

6. Company X is expected to pay an year-end dividend of $5 a share on its common stock.

After the dividend payment the stock is expected to sell at $110 per share. The required

rate of return on the common stock is 15%. Then, calculate the current price of the stock.

7. A share of common stock has an expected long-run constant dividend growth rate of 7%,

and the most recent dividend  D₀, was $5.00. The required rate of return on the common stock

is 18%.  Then, using the dividend growth model, calculate the current price of the stock.

8. A share of common stock has an expected long-run constant dividend growth rate of 6%,

and the most recent dividend  D₀, was $5.00. The stock is currently selling for $50 per share.
Calculate the required rate of return on the stock. Also calculate the dividend yield and  capital gains
yield  for the stock

9. If the dividends on a preferred stock is $9 per year, and the required rate of return on the stock is
   12%, then calculate the current price of the preferred stock .

10. For Stock A, the cash dividend expected one year from now is $9 [D₁]. The dividends are expected
    to grow at a constant rate of 6% per year for ever. The required rate of return on the common
    stock is 15%. Then calculate the current price of the stock using  the dividend growth model.