1The
Jackson–Timberlake Wardrobe Co. just paid a dividend of $1.25 per share on its
stock. The dividends are expected to grow at a constant rate of 5 percent per
year indefinitely. Investors require a return of 12 percent on the company’s
stock
aWhat is the current
stock price?
bWhat will the stock
price be in three years?
cWhat will the stock
price be in 8 years?
2The next dividend payment by
Halestorm, Inc., will be $1.56 per share. The dividends are anticipated to
maintain a growth rate of 4 percent forever. If the stock currently sells for
$29 per share, what is the required return percent?
3Caan
Corporation will pay a $2.98 per share dividend next year. The company pledges
to increase its dividend by 5 percent per year indefinitely. If you require a
return of 14 percent on your investment, how much will you pay for the
company’s stock today?
4Tell Me
Why Co. is expected to maintain a constant 5.4 percent growth rate in its
dividends indefinitely. If the company has a dividend yield of 7.2 percent,
what is the required return on the company’s stock percent ?
5Moraine,
Inc., has an issue of preferred stock outstanding that pays a $4.55 dividend
every year in perpetuity. If this issue currently sells for $96 per share, what
is the required return percent?
6Bayou
Okra Farms just paid a dividend of $3.70 on its stock. The growth rate in
dividends is expected to be a constant 7 percent per year indefinitely.
Investors require a return of 16 percent for the first three years, a return of
14 percent for the next three years, and a return of 12 percent thereafter.
What is the current share price?
7Lohn
Corporation is expected to pay the following dividends over the next four
years: $17, $13, $11, and $6.50. Afterward, the company pledges to maintain a
constant 4 percent growth rate in dividends forever. If the required return on
the stock is 12 percent, what is the current share price?
8Synovec
Co. is growing quickly. Dividends are expected to grow at a rate of 24 percent
for the next three years, with the growth rate falling off to a constant 6
percent thereafter. If the required return is 14 percent, and the company just
paid a dividend of $3.40, what is the current share price?
9Secolo
Corporation stock currently sells for $79 per share. The market requires a
return of 9.6 percent on the firm’s stock. If the company maintains a constant
2.8 percent growth rate in dividends, what was the most recent dividend per
share paid on the stock?
10You have found the
following stock quote for RJW Enterprises, Inc., in the financial pages of
today’s newspaper.

52WEEK






YLD





VOL






NET

HI


LO


STOCK (DIV)


%


PE


100s


CLOSE


CHG

88.12




46.72




RJW

1.70



2.0



15




18,507




??



−

.17



                            
What was the closing
price for this stock that appeared in yesterday’s paper? (Do not round intermediate calculations and round your
answer to 2 decimal places, e.g., 32.16.)

Yesterday’s closing
price

$

If the company
currently has 20 million shares of stock outstanding, what was net income for
the most recent four quarters? (Enter your
answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round
intermediate calculations and round your answer to 2 decimal places, e.g.,
32.16.)

11
Locate the Treasury
issue in Figure 7.4 maturing in February 2026. Assume a
par value of $10,000.

What is its coupon
rate? (Enter your answer as a percent rounded to 3 decimal places, e.g.,
32.161.)

What is its bid price in
dollars? (Do not round intermediate calculations. Round your answer to
2 decimal places, e.g., 32.16.)

What was the previous
day’s asked price in dollars? (Do not round intermediate
calculations. Round your answer to 2 decimal places, e.g., 32.16.)

12 A
Japanese company has a bond outstanding that sells for 91 percent of its
¥100,000 par value. The bond has a coupon rate of 5 percent paid annually and
matures in 12 years.

What is the yield to
maturity of this bond?

13 Say
you own an asset that had a total return last year of 10.7 percent. If the
inflation rate last year was 4.9 percent, what was your real return?
14 Bond
X is a premium bond making semiannual payments. The bond pays a coupon
rate of 11 percent, has a YTM of 9 percent, and has 15 years to maturity.
Bond Y is a discount bond making semiannual payments. This bond pays a coupon
rate of 9 percent, has a YTM of 11 percent, and also has 15 years to
maturity. The bonds have a $1,000 par value.

What is
the price of each bond today?

15– If
interest rates remain unchanged, what do you expect the price of these bonds to
be one year from now? In five years? In ten years? In 14 years? In 15
years?
16
Both
Bond Sam and Bond Dave have 10 percent coupons, make semiannual payments, and
are priced at par value. Bond Sam has four years to maturity, whereas Bond
Dave has 17 years to maturity.

If
interest rates suddenly rise by 2 percent, what is the percentage change in
the price of Bond Sam and Bond Dave?

If rates were to suddenly fall by
2 percent instead, what would be the percentage change in the price of
Bond Sam and Bond Dave?
17
Bond J
has a coupon rate of 6 percent and Bond K has a coupon rate of 12 percent.
Both bonds have 14 years to maturity, make semiannual payments, and have a
YTM of 9 percent.

If
interest rates suddenly rise by 2 percent, what is the percentage price
change of these bonds?
What
if rates suddenly fall by 2 percent instead?
18
Bourdon
Software has 9.8 percent coupon bonds on the market with 18 years to
maturity. The bonds make semiannual payments and currently sell for 107.7
percent of par.
What
is the current yield on the bonds?
What is the YTM?
What is the effective
annual yield?

19
Bond P
is a premium bond with a coupon rate of 9 percent. Bond D has a coupon rate
of 4 percent and is currently selling at a discount. Both bonds make annual
payments, have a YTM of 6 percent, and have eight years to maturity.

What is
the current yield for bond P and bond D?

If interest rates remain
unchanged, what is the expected capital gains yield over the next year for bond
P and bond D?
20
The YTM
on a bond is the interest rate you earn on your investment if interest rates
don’t change. If you actually sell the bond before it matures, your realized
return is known as the holding period yield (HPY).

a.

Suppose
that today you buy a bond with an annual coupon of 11 percent for
$1,130. The bond has 18 years to maturity. What rate of return do you expect
to earn on your investment? Assume a par value of $1,000.

b1.

Two
years from now, the YTM on your bond has declined by 1 percent, and you
decide to sell. What price will your bond sell for?

B2. What is the HPY on your
investment percent?