What is the price of the bond

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Question -

(A) A company is issuing a 10 - year bond with a coupon rate of 8.89 per cent. The interest rate for similar bonds is currently 5.97 per cent. Assuming the face value of the bond is $1000, what is the price of the bond?

(B) A company pays a $5 dividend per year, and the board of directors has no plans to change the dividend. The company's investors expect a 20 per cent return on their investment.

1- What should be the price of the company's share?

2- Assume now the company dividend policy sets dividend growth at a 4 per cent annual rate, what is the share price under this growth?

3- Compare the two prices that you fond above in 1 and 2, which one is higher and why?

Reference no: EM132999492

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