What price will you pay for each bond

Reference no: EM132208159

Questions -

Q1. LMN is a fairly new security issue that pays no dividends at all. You have been charged by your investment club with the job of calculating its value and have decided to use the Earnings Multiplier method to provide them with an answer. Assume that stock LMN has earnings of $3.40, which are expected to grow by 10% next year. Also, stock LMN seems to typically trade at a 10% discount to its industry. The P/E ratio of the industry is 16.

What will you tell your investment club the value of stock LMN is based on next year's earnings and using the earnings multiplier?

Q2. You are the bond buyer for the brokerage firm, Dewey Cheatem and Howe, and there are three bonds that you want to add to your portfolio. The current yield to maturity in the market is 6.575% and you are looking for bonds that pay semi-annual coupon interest payments with $1,000 maturity. What price will you pay for each bond?

Bond	Coupon	Years to Maturity	Price
1	10.41%	15
2	6.155%	12
3	5.70%	7

Reference no: EM132208159

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