Reference no: EM131799310
Question -
a. Church Inc. is presently enjoying relatively high growth because of a surge in the demand for its new product. Management expects earnings and dividends to grow at a rate of 25% for the next 4 years, after which competition will probably reduce the growth rate in earnings and dividends to zero, i.e., g = 0. The company's last dividend, D0, was $1.25, its beta is 1.20, the market risk premium is 5.50%, and the risk-free rate is 3.00%. What is the current price of the common stock?
Stock Price Today (P0) = ____________________.
b. A bond with a face value of $1,000 matures in 12 years and has a 9 percent semiannual coupon. (That is, the bond pays a $45 coupon every six months). The bond currently has a nominal annual yield to maturity of 7.5 percent, and it can be called in 4 years at a call price of $1,045. How much should you be willing to pay for this bond today (on December 4, 2011)? Also, if this bond is called in 4 years (on 12/4/2015), what is the bond's nominal annual yield to call?
Current Bond Price, VB, on 12/4/2011 = ____________________.
Yield to Call = ____________________.
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