1. The market price for Alphabet Soup's 7.5% bonds maturing in 10 years are selling for $1,013.03. The bonds pay annual coupons. The company is about to issue new (annual coupon) bonds with a maturity of 10 years. In order for the new bonds to sell at par when issued, what coupon rate would these bonds have to carry? 2. Over the next 4 years, Sunshine Coffee Enterprises expects its dividends (on common stock) to be: $3.00, $3.50, $0, and $4.50 in years 1,2,3, and 4, respectively. Sunshine expects a 6.5% growth rate in dividends thereafter. Find the stock price today. Assume that r=10%.
1. The market price for Alphabet Soup's 7.5% bonds maturing in 10 years are selling for $1,013.03. The bonds pay annual coupons. The company is about to issue new (annual coupon) bonds with a maturity of 10 years. In order for the new bonds to sell at par when issued, what coupon rate would these bonds have to carry? 2. Over the next 4 years, Sunshine Coffee Enterprises expects its dividends (on common stock) to be: $3.00, $3.50, $0, and $4.50 in years 1,2,3, and 4, respectively. Sunshine expects a 6.5% growth rate in dividends thereafter. Find the stock price today. Assume that r=10%.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Please help me with these questions. Please don't use excel
Transcribed Image Text:1. The market price for Alphabet Soup's 7.5% bonds maturing in 10 years are selling for $1,013.03. The bonds pay annual coupons. The
company is about to issue new (annual coupon) bonds with a maturity of 10 years. In order for the new bonds to sell at par when
issued, what coupon rate would these bonds have to carry?
2. Over the next 4 years, Sunshine Coffee Enterprises expects its dividends (on common stock) to be: $3.00, $3.50, $0, and $4.50 in
years 1,2,3, and 4, respectively. Sunshine expects a 6.5% growth rate in dividends thereafter. Find the stock price today. Assume that
r=10%.
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