Dillon Inc. is considering investing in a 30-year $1,000 bond with a 3.0% coupon, interest paid semiannually. The current market interest rate is 4.5%, and the bond is priced at $790. Dillon Inc paid a dividend last year of $1.50. Dividends are expected to grow at a rate of 17% this year, 15% next year, 10% the following year and 5% thereafter. The required rate of return is 15%. PRIMARY POST: 1) What is the maximum price Dillon should pay for the bond? Should Dillon purchase the bond? 2) What is the price of the stock for Dillon today? 3) What is the price of the stock for Dillon 2 years from now? 4) What is the price of the stock for Dillon 5 years from now?
Dillon Inc. is considering investing in a 30-year $1,000 bond with a 3.0% coupon, interest paid semiannually. The current market interest rate is 4.5%, and the bond is priced at $790. Dillon Inc paid a dividend last year of $1.50. Dividends are expected to grow at a rate of 17% this year, 15% next year, 10% the following year and 5% thereafter. The required rate of return is 15%. PRIMARY POST: 1) What is the maximum price Dillon should pay for the bond? Should Dillon purchase the bond? 2) What is the price of the stock for Dillon today? 3) What is the price of the stock for Dillon 2 years from now? 4) What is the price of the stock for Dillon 5 years from now?
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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Transcribed Image Text:Dillon Inc. is considering investing in a 30-year $1,000 bond with a 3.0% coupon, interest paid
semiannually. The current market interest rate is 4.5%, and the bond is priced at $790.
Dillon Inc paid a dividend last year of $1.50. Dividends are expected to grow at a rate of 17% this
year, 15% next year, 10% the following year and 5% thereafter. The required rate of return is 15%.
PRIMARY POST:
1) What is the maximum price Dillon should pay for the bond? Should Dillon purchase the bond?
2) What is the price of the stock for Dillon today?
3) What is the price of the stock for Dillon 2 years from now?
4) What is the price of the stock for Dillon 5 years from now?
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