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Calculate the bond expected rate of return

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Q1. Toucan Ltd is expected to pay its ordinary shareholders a dividend of $1.50 in one year's time. It is projected that these dividends will decline at a rate of 6% for the for-seeable future. If the ordinary share investor's required rate of return is 9%, estimate the current value of each ordinary share.

Q2. Mar's Corporation bonds with par of $1,000 mature in 15 years and pays 6.5% coupon interest. The market price of the bonds is $990 and your required rate of return is 8%.

(a) Calculate the bond's expected rate of return.

(b) Calculate the value of the bond to you, given your required rate of return.

(c) Should you purchase the bond? (State a reason for your answer.)

Reference no: EM133027683

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