About the interest rate risk of longer-term bonds

Assignment Help Financial Management

Reference no: EM132019021

Airnova Inc. has two types of bonds, Bond D and Bond F. Both have 8 percent coupons, make semiannual payments, and are priced at par value. Bond D has 2 years to maturity. Bond F has 15 years to maturity.

Airnova Inc. is considering four different types of stocks. They each have a required return of 20 percent and a dividend of $3.75 for share. Stocks, A, B, and C are expected to maintain constant growth rates in dividends for the near future of 10 percent, 0 percent, and -5 percent, respectively. Stock D is a growth stock and will increase its dividend by 30 percent for the next four years and then maintain a constant 12 percent growth rate after that.

Discuss:

If interest rates suddenly rise by 2 percent, what is the percentage change in both bonds?

If interest rates suddenly fall by 2 percent, what is the percentage change in both bonds?

What does this tell you about the interest rate risk of longer-term bonds?

What is the dividend yield for each of the four stocks?

What is the expected capital gains yield?

Discuss the relationship among the various returns that you find for each of the stocks.

Reference no: EM132019021

Questions Cloud

Write a narrative about historical development of each topic : Write a narrative about the historical development of each topic. Be sure to include contributions from diverse cultures and historical figures

What profit do you actually expect : If an issue is underpriced, it will be rationed, and only half your order will be filled. What profit do you actually expect?

What would the npv of the lease relative to the purchase be : If actual inflation exceeds expected inflation. The corporate tax rate is 34%. What would the NPV of the lease relative to the purchase be?

The debt carries covenants : Your firm successfully issued new debt last year, but the debt carries covenants. What is the maximum dividend you could pay this year

About the interest rate risk of longer-term bonds : What does this tell you about the interest rate risk of longer-term bonds? What is the expected capital gains yield?

What is the price per share of samsung : Samsung has no other investment opportunities. Assume all cash flows are received at the end of each year. What is the price per share of Samsung?

What is the pretax and aftertax cost of debt : What is the pretax cost of debt? What is the aftertax cost of debt? Which is more relevant, the pretax or the aftertax cost of debt? Why?

What is the yield to call if you purchase the bond : What is the yield to call if you purchase the bond? What is the yield to worst?

Define clash between personal values and cultural values : In your new position as a manager in a foreign nation, what systems will you want to put in place to make you more effective and enhance productivity?

User Account

All Pages