AlphaGet is currently assessing the value of its securities and have obtained the following information that should provide AlphaGet with the necessary information to estimate the value of its securities: Current long-term government securities carry a yield of 6.5% which includes an inflation premium of 1.25% Based on the credit rating of AlphaGet of BAA, the estimated credit spread of AlphaGet is at 2.5% Utilizing the work of an external expert, beta of AlphaGet is estimated at +1.5 for marginal investors Diversified investors in the market is currently demanding a 2.0% premium over government securities The following are the current instruments issued by AlphaGet: Bond A carries a 5-year tenor and will mature in 3 years with a face value of Php250,000 carrying a coupon of 7.75% Bond B carries a 10-year tenor and will mature in 5 years with a face value of Php500,000 carrying a coupon of 6.5% Bond C carries a 5-year tenor and was just recently issued with a face value of Php500,000 carrying a coupon of 8.0% AlphaGet had historically paid dividends out at a rate of 10% of its net income. Dividends paid out this year amounted to Php120.00 per share and is expected to grow by 5% per year over the next 5 years before stabilizing at 3.5% perpetually after year five. 1. What is the expected price of AlphaGet's common share assuming that AlphaGet's dividends are expected to grow by 5% perpetually instead of just for the first five year? Clue - correct answer should have a string of number "80" appearing in sequence in any unit until two decimal points. 2. What is the cost of equity for AlphaGet? 3. What is the value of Bond C of AlphaGet? Clue - correct answer should have a string of number "44" appearing in sequence in any unit until two decimal points.
AlphaGet is currently assessing the value of its securities and have obtained the following information that should provide AlphaGet with the necessary information to estimate the value of its securities: Current long-term government securities carry a yield of 6.5% which includes an inflation premium of 1.25% Based on the credit rating of AlphaGet of BAA, the estimated credit spread of AlphaGet is at 2.5% Utilizing the work of an external expert, beta of AlphaGet is estimated at +1.5 for marginal investors Diversified investors in the market is currently demanding a 2.0% premium over government securities The following are the current instruments issued by AlphaGet: Bond A carries a 5-year tenor and will mature in 3 years with a face value of Php250,000 carrying a coupon of 7.75% Bond B carries a 10-year tenor and will mature in 5 years with a face value of Php500,000 carrying a coupon of 6.5% Bond C carries a 5-year tenor and was just recently issued with a face value of Php500,000 carrying a coupon of 8.0% AlphaGet had historically paid dividends out at a rate of 10% of its net income. Dividends paid out this year amounted to Php120.00 per share and is expected to grow by 5% per year over the next 5 years before stabilizing at 3.5% perpetually after year five. 1. What is the expected price of AlphaGet's common share assuming that AlphaGet's dividends are expected to grow by 5% perpetually instead of just for the first five year? Clue - correct answer should have a string of number "80" appearing in sequence in any unit until two decimal points. 2. What is the cost of equity for AlphaGet? 3. What is the value of Bond C of AlphaGet? Clue - correct answer should have a string of number "44" appearing in sequence in any unit until two decimal points.
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
Related questions
Question
AlphaGet is currently assessing the value of its securities and have obtained the following information that should provide AlphaGet with the necessary information to estimate the value of its securities:
- Current long-term government securities carry a yield of 6.5% which includes an inflation premium of 1.25%
- Based on the credit rating of AlphaGet of BAA, the estimated credit spread of AlphaGet is at 2.5%
- Utilizing the work of an external expert, beta of AlphaGet is estimated at +1.5 for marginal investors
- Diversified investors in the market is currently demanding a 2.0% premium over government securities
The following are the current instruments issued by AlphaGet:
- Bond A carries a 5-year tenor and will mature in 3 years with a face value of Php250,000 carrying a coupon of 7.75%
- Bond B carries a 10-year tenor and will mature in 5 years with a face value of Php500,000 carrying a coupon of 6.5%
- Bond C carries a 5-year tenor and was just recently issued with a face value of Php500,000 carrying a coupon of 8.0%
AlphaGet had historically paid dividends out at a rate of 10% of its net income. Dividends paid out this year amounted to Php120.00 per share and is expected to grow by 5% per year over the next 5 years before stabilizing at 3.5% perpetually after year five.
1. What is the expected price of AlphaGet's common share assuming that AlphaGet's dividends are expected to grow by 5% perpetually instead of just for the first five year? Clue - correct answer should have a string of number "80" appearing in sequence in any unit until two decimal points.
2. What is the
3. What is the value of Bond C of AlphaGet? Clue - correct answer should have a string of number "44" appearing in sequence in any unit until two decimal points.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 5 steps with 6 images
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education