Reference no: EM133049513

Questions -

Q1. An issue of bonds with par of $1000 matures in 12 years and pays interest at 7% annually. The current quoted market price is $1200 and the investors required rate of return is 8%.

(a) Calculate the bonds expected rate of return.

(b) Should the investor purchase the bond? (Explain your answer.)

Q2. Due to the current global economic conditions, Canary Ltd stopped its dividend payments. Dividends of $3.50 are expected to re-commence in 6 years and are expected to increase at a rate of 5% per year thereafter. If the required rate of return is 11%, what is the current value of the firm's shares?

Q3. Given that a company's return on equity is 14% and management plans to retain 30% of earnings for investment purposes,

(a) Calculate the company's growth rate of future earnings.

(b) If the company just paid a cash dividend of $1.20, and the required rate of return is 13%, what is the value of the firm's shares?

Q4. A $2,000 bond with 8 years to maturity is currently selling for $2,055. If the yield to maturity is 9.5%, calculate the bond's coupon interest rate.

Q5. The dividend for Annen's ordinary shares is expected to be $1.20 next year. This dividend is expected to grow at a rate of 6% for the following two years, after which is expected to grow at 4% each year for the foreseeable future. If the required rate of return on these shares is 12%, what is the approximate current value of the firm's shares?

Q6. You initially deposit $3,000 in to a savings account for 5 years, paying 6% compounded annually. Starting 6 years from now, you were able to deposit an annual amount of $500 each year for 8 years in to the savings account, and the interest rate rises to 9% compounded semi-annually. What is the balance in the account at the end of 13 years?