1. A company issued 20-year bonds with par value $1,000 two years ago at a coupon rate of 5 percent. The bonds make semiannual coupon payments. The yield to maturity on this bond is 4 percent. Calculate the current yield of the bond. Q2. A company has an odd dividend policy. The company will pay a dividend of $3 per share next year and has announced that it will increase the dividend by $5 per share for each of the subsequent four years and then maintains a constant 2% growth rate. If you require a return of 8 percent on the company’s stock. A. How much will you pay for a share today? B. At the price you are willing to pay for, what is the dividend yield in the first yea
Q1. A company issued 20-year bonds with par value $1,000 two years ago at a coupon rate of 5 percent. The bonds make semiannual coupon payments. The yield to maturity on this bond is 4 percent. Calculate the current yield of the bond.
Q2. A company has an odd dividend policy. The company will pay a dividend of $3 per share next year and has announced that it will increase the dividend by $5 per share for each of the subsequent four years and then maintains a constant 2% growth rate. If you require a return of 8 percent on the company’s stock.
A. How much will you pay for a share today?
B. At the price you are willing to pay for, what is the dividend yield in the first year?
Q3. A project has the following cash flow with a discount rate of 12%: Annual cash flows:
Year 0 Year 1 Year 2 Year 3 Year 4
$ -520,000 $ 170,000 $ 210,000 $ 225,000 $ 195,000
$520,000 is used in purchasing an equipment for the project only.
Compute the following:
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Payback period;
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Discounted Payback period;
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NPV ; -
ProfitabilityIndex;
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Average Accounting Return, assuming that the cash flow shown is the income before
tax and
depreciation and ignoring the tax effects. -
Should the project be accepted. Explain.
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