miba PLC is looking for financial investments in the securities market. Two investment options are available in different securities: Bonds and ordinary shares. Company A is issuing bonds having 12% coupon rate. Interest is paid semi-annually. The bonds have a face value of $1,000 each and will mature 10 years from now. Company B is issuing ordinary shares and just paid a dividend of $6.50 per share. The Company Management agreed on the steady growth of 12% in dividends and earnings over the foreseeable future. The required rate of return for shares of this type is 18%.
miba PLC is looking for financial investments in the securities market. Two investment options are available in different securities: Bonds and ordinary shares. Company A is issuing bonds having 12% coupon rate. Interest is paid semi-annually. The bonds have a face value of $1,000 each and will mature 10 years from now. Company B is issuing ordinary shares and just paid a dividend of $6.50 per share. The Company Management agreed on the steady growth of 12% in dividends and earnings over the foreseeable future. The required rate of return for shares of this type is 18%.
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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Question
Amiba PLC is looking for financial investments in the securities market. Two investment options are available in different securities: Bonds and ordinary shares.
- Company A is issuing bonds having 12% coupon rate. Interest is paid semi-annually. The bonds have a face value of $1,000 each and will mature 10 years from now.
- Company B is issuing ordinary shares and just paid a dividend of $6.50 per share. The Company Management agreed on the steady growth of 12% in dividends and earnings over the foreseeable future. The required
rate of return for shares of this type is 18%.
Required:
- Compute the current value of company A bonds if the required rate of return is 10%
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