Solution-Dividend for the first five years

Dividend for the first five years

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Reference no: EM132607453

1. Nat-T-Cat Industries just went public. As a growing firm, it is not expected to pay a dividend for the first five years. After that, investors expect Nat-T-Cat to pay an annual dividend $1.00 per share (i.e., D6 = 1.00), with no growth.

(a.) If the required return is 10%, what is the current stock price?

(b.) If the current market price for this stock is $ 14, would you like to invest it ?

2. A bond pays $80 per year in interest (8% coupon). The bond has 5 years before it matures at which time it will pay $1,000.

(a.) Assuming a discount rate of 10%, what should be the price of the bond?

(b.) Assuming a discount rate of 10%, however the compounding frequency is semi-annually, should the price be higher or lower than that in question (a)? Why? Without calculation.

What are the answers of the above questions?

Reference no: EM132607453

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Dividend for the first five years

Reference no: EM132607453

Reference no: EM132607453

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