Reference no: EM132928275

Questions -

Q1. Midland Oil has $1,000 par value (maturity value) bonds outstanding at 13 percent interest. The bonds will mature in 15 years with annual payments. Compute the current price of the bonds if the present yield to maturity is?

Q2. Applied Software has a $1,000 par value bond outstanding that pays 12 percent interest with annual payments. The current yield to maturity on such bonds in the market is 8 percent. Compute the price of the bonds for these maturity dates:

a. 30 years$

b. 20 years$

c. 2 years$

Q3. Martin Shipping Lines issued bonds ten years ago at $1,000 per bond. The bonds had a 30-year life when issued, with semiannual payments at the then annual rate of 10 percent. This return was in line with required returns by bondholders at that point, as described below:

Real rate of return1% Inflation premium4 Risk premium5 Total return10%

Assume that today the inflation premium is only 2 percent and is appropriately reflected in the required return (or yield to maturity) of the bonds.

Compute the new price of the bond.

Q4. A preferred share of Hilton Chocolate Company pays an annual dividend of $5.70. It has a required rate of return of 6 percent. Compute the price of a preferred share.

Q5. The Quaid Brothers Corporation has preferred shares outstanding that pay an annual dividend of $13.45. Each has a price of $131. What is the required rate of return (yield) on the preferred stock?

Q6. Allied Coal will pay a common share dividend of $3.55 at the end of the year (D1). The required return on common shares (Ke) is 20 percent. The firm has a constant growth rate (g) of 10 percent. Compute the current price of the shares (P0).

Q7. A firm will pay a $12.80 dividend at the end of year one, has a share price of $111, and a constant growth rate of 5 percent. Compute the required (expected) rate of return.