LEVEL A BASIC A1-A17 - A1. (Bond
valuation) A $1,000 face value bond has a remaining maturity of 10 years
A1. (Bond valuation) A $1,000 face
value bond has a remaining maturity of 10 years and a required return of 9%.
The bond’s coupon rate is 7.4%. What is the fair value of this bond?
A2. (Bond valuation) Find the
missing information for each of the following bonds. The coupons are paid in
semiannual installments, so the number of payments is equal to twice the bond’s
life in years. The YTM is compounded semiannually. N YIELD TO PRESENT COUPON
FACE BOND (YEARS) MATURITY VALUE RATE VALUE 1 8 10.2% — 8.0% $1,000 2 7 8.0% —
9.0% $1,000 3 15 9.5% — 7.5% $1,000 4 20 — $1,075.00 8.5% $1,000 5 — 7.0%
$963.80 6.49% $1,000 6 13 7.8% $1,140.60 — $1,000
A3. (Bond valuation) General Electric made a coupon payment
yesterday on its 6.75% bonds that mature in 8.5 years. If the required return
on these bonds is 8% APR, what should be the market price of these bonds?
A4. (Bond valuation) RCA made a coupon payment yesterday on
its 6.25% bonds that mature in 11.5 years. If the required return on these
bonds is 9.2% nominal annual, what should be the market price of these bonds?
A5. (Yield to maturity) New Jersey Lighting has a 7% coupon
bond maturing in 17 years. The current market price of the bond is $975. What
is the bond’s yield to maturity?
A7. (Yield to maturity) Kraft’s 5.75% coupon bond that
matures in five years is selling for 98. a. What is the yield to maturity? b.
What is the urrent yield?
A8. (One-period dividend discount model) Mead is expected to
pay a $1.40 dividend in the next year and to sell for $68.00 in one year.
Discounted at a required return of 12%, what is the value of one share of Mead
today?
A9. (Two-period dividend discount model) New England
Electric has projected dividends of $2.72 in one year and $3.10 in two years.
If the stock is projected to sell for $48.00 in two years, what is the value of
the stock today if the required return is 10%?
A10. (Dividend discount model) Assume RHM is expected to pay
a total cash dividend of $5.60 next year and its dividends are expected to grow
at a rate of 6% per year forever. Assuming annual dividend payments, what is
the current market value of a share of RHM stock if the required return on RHM
common stock is 10%?
A11. (Expected return) Northern States Power has a projected
dividend of $3.60 next year. Thecurrent stock price is $50.50 per share. If the
dividend is projected to grow at 3.5% annually, what is the expected return on
Northern States stock?
A12. (Required return for a preferred stock) James River
$3.38 preferred is selling for $45.25. The preferred dividend is nongrowing.
What is the required return on James River preferred stock?
A13. (Required return for a preferred stock) Sony $4.50 preferred
is selling for $65.50. The preferred dividend is non-growing. What is the
required return on Sony preferred stock?
A14. (Stock valuation) Suppose Toyota has nonmaturing
(perpetual) preferred stock outstanding that pays a $1.00 quarterly dividend
and has a required return of 12% APR (3% per quarter). What is the stock worth?
A15. (Stock valuation) Let’s say the Mill Due Corporation is
expected to pay a dividend of $5.00 per year on its common stock forever into
the future. It has no growth prospects whatsoever. If the required return on
Mill Due’s common stock is 14%, what is a share worth?
A16.
(Growth rate) Suppose Toshiba has a payout ratio of 55% and an expected return
on its future investments of 15%. What is Toshiba’s expected growth rate?
A17. (Valuing a perpetual bond) Suppose a bond pays $90
per year forever. If the bond’s required return is 10.3%, what is the bond
selling for in the capital markets?
SOLUTION PREVIEW
A2.
(Bond valuation) Find the missing information for each of the following bonds.
The coupons are paid in semiannual installments, so the number of payments is
equal to twice the bond’s life in years. The YTM is compounded semiannually. N
YIELD TO PRESENT COUPON FACE BOND (YEARS) MATURITY VALUE RATE VALUE 1 8 10.2% —
8.0% $1,000 2 7 8.0% — 9.0% $1,000 3 15 9.5% — 7.5% $1,000 4 20 — $1,075.00
8.5% $1,000 5 — 7.0% $963.80 6.49% $1,000 6 13 7.8% $1,140.60 — $1,000
|
N
|
Bond (years)
|
Yield to maturity
|
Present value
|
Coupon rate
|
Face value
|
|
1
|
8
|
10.20%
|
-
|
8%
|
1,000
|
|
2
|
7
|
8.00%
|
-
|
9.00%
|
1,000
|
|
3
|
15
|
9.50%
|
-
|
7.50%
|
1,000
|
|
4
|
20
|
-
|
1,075
|
8.50%
|
1,000
|
File name: Level-A-Basic-A1-A17.xls File type: application/vnd.ms-excel Price: $20
