Reference no: EM133000652
Question -
Q1. A bond has coupon rate of 5%, YTM of 3%, face value of $1,000, and matures in 8 years.
a. What are bond value, current yield, and capital gains yield this year?
b. What are bond value, current yield, and capital gains yield in 3 years?
c. Explain what happens to this bond's value, current yield, and capital gains yield as the bond approaches its maturity date.
Q2. A company does not plan to pay dividends until 3 years from now. The first dividend will be $3 (i.e. D3=$3). After that, dividends will increase by a fixed rate of 3.5% per year indefinitely. The required return on the stock is 12%.
a. What are the stock price, dividend yield, and capital gains yield in 2 years?
b. What are the stock price, dividend yield, and capital gains yield in 5 years?
c. What are the stock price, dividend yield, and capital gains yield this year?
d. Explain what will happen to the stock price after the dividends have begun to be paid.
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