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How much is the value of Bond Quartz

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Reference no: EM132902464

Problem - Bato Co is currently estimating the value of its securities given the following information:

Government securities currently trade at 4.5%

Credit spread for Bato Co is estimated as follows based on its maturity

3 year maturity - 3.5%

4 year maturity - 5.0%

5 year maturity - 6.0%

Based on current estimates the Beta of Bato is estimated at 0.75

Market risk premium for equity instruments is estimated at 6.5%

The following summarizes the instruments currently issued by Bato:

Bond Graphite - Php500,000 face value bond with a 5-year tenor carrying 8.0% coupon issued two years ago

Bond Quartz - Php750,000 face value bond with a 4-year tenor carrying 8.0% coupon issued just today

Bond Marble - Php1,000,000 face value bond with a 5-year tenor carrying a 12.0% coupon issued last year

10,000 common shares - Bato just declared a dividend of Php2.50 per share and is expected to grow by 20% over the next five years before slowing down to 5% beginning year 6

Required - How much is the value of Bond Quartz?

Reference no: EM132902464

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