Mr. Norman and Mr. Foster are both investors looking to buy financial assets. Mr. Norman prefers assets with the lowest prices while Mr. Foster prefers assets on the financial market with higher prices. Each of them currently has GHC 1,000 to invest and needs your assistance to know which asset to buy to suit their preference. The following information provides details of investment options. a. Asset A is a bond with a coupon rate of 10% and pays semi- annual coupons. The par value is GHC 1,000, and the bond has 5 years to maturity. The yield to maturity is 11%. b. Asset B is a stock whose dividend is expected to increase by 20% in one year and by 15% in two years. After that, dividends will increase at a rate of 5% per year indefinitely. The last dividend was GHC 100 and the required return is 20%. Which asset will Mr. Norman and Mr. Foster invest in? In the 2020 accounting year, investors made a number observations in terms of certain decisions some corporations were taking: (1) The board of directors of some manufacturing and services companies decided to pay stock dividends instead of cash dividends; (11) On the other hand, the board of directors of majority of companies within the ICT industry decided to pay special cash dividends; ii) It was also observed that some the management of some Frs: Godfred A. Bokpin, Adom Frimpong, Vera Fiador & Lordina Amoah, Page 4 of companies had decided to repurchase shares while others were engaging in stock splits. What could be the reason for these three decisions and choice of dividend payments by the boards of these companies and what will be the effect of such decisions on the outstanding number of shares and the share prices of these companies?
Mr. Norman and Mr. Foster are both investors looking to buy financial assets. Mr. Norman prefers assets with the lowest prices while Mr. Foster prefers assets on the financial market with higher prices. Each of them currently has GHC 1,000 to invest and needs your assistance to know which asset to buy to suit their preference. The following information provides details of investment options. a. Asset A is a bond with a coupon rate of 10% and pays semi- annual coupons. The par value is GHC 1,000, and the bond has 5 years to maturity. The yield to maturity is 11%. b. Asset B is a stock whose dividend is expected to increase by 20% in one year and by 15% in two years. After that, dividends will increase at a rate of 5% per year indefinitely. The last dividend was GHC 100 and the required return is 20%. Which asset will Mr. Norman and Mr. Foster invest in? In the 2020 accounting year, investors made a number observations in terms of certain decisions some corporations were taking: (1) The board of directors of some manufacturing and services companies decided to pay stock dividends instead of cash dividends; (11) On the other hand, the board of directors of majority of companies within the ICT industry decided to pay special cash dividends; ii) It was also observed that some the management of some Frs: Godfred A. Bokpin, Adom Frimpong, Vera Fiador & Lordina Amoah, Page 4 of companies had decided to repurchase shares while others were engaging in stock splits. What could be the reason for these three decisions and choice of dividend payments by the boards of these companies and what will be the effect of such decisions on the outstanding number of shares and the share prices of these companies?
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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Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
Question
Transcribed Image Text:Mr. Norman and Mr. Foster are both investors looking to buy financial
assets. Mr. Norman prefers assets with the lowest prices while Mr.
Foster prefers assets on the financial market with higher prices. Each
of them currently has GHC 1,000 to invest and needs your assistance
to know which asset to buy to suit their preference. The following
information provides details of investment options.
a. Asset A is a bond with a coupon rate of 10% and pays semi-
annual coupons. The par value is GHC 1,000, and the bond has
5 years to maturity. The yield to maturity is 11%.
b. Asset B is a stock whose dividend is expected to increase by
20% in one year and by 15% in two years. After that, dividends
will increase at a rate of 5% per year indefinitely. The last
dividend was GHC 100 and the required return is 20%.
Which asset will Mr. Norman and Mr. Foster invest in?
In the 2020 accounting year, investors made a number observations
in terms of certain decisions some corporations were taking:
(1) The board of directors of some manufacturing and services
companies decided to pay stock dividends instead of cash dividends;
(11) On the other hand, the board of directors of majority of companies
within the ICT industry decided to pay special cash dividends;
ii) It was also observed that some the management of some
Frs: Godfred A. Bokpin, Adom Frimpong, Vera Fiador & Lordina Amoah, Page 4 of
companies had decided to repurchase shares while others were
engaging in stock splits.
What could be the reason for these three decisions and choice of
dividend payments by the boards of these companies and what will
be the effect of such decisions on the outstanding number of shares
and the share prices of these companies?
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