Present value of the dividends during super normal growth

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Reference no: EM131912363

1. A bond issued by Greenview Corporation has a coupon interest rate of 6%. The present yield to maturity on similar bonds is 7%. Given this information, what can you determine regarding Greenview Corporation's bond?

a. Greenview Corporation's bond will sell at a price above par.

b. Greenview Corporation's bond will sell at a price that is equal to the face value of the bond plus the value of all interest payments.

c. Greenview Corporation's bond will sell at a price below par.

d. Greenview Corporation's bond will sell at a price equal to par.

2. Over the last twelve months, Eastview Corporation paid a dividend of $1.12 per share. This dividend is expected to grow over the next three years at a rate of 25%. It is then expected to grow at a normal, constant rate of 7%. Assume that the required rate of return (also the discount rate) is 12%.

What is the present value of the dividends during the supernormal growth years? What is the price of the stock at the end of the third year?

a. $4.20, $35.20

b. $1.40, $46.80

c. $1.40, $37.12

d. $2.40, $41.20

e. $4.20, $46.80

Reference no: EM131912363

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