Question 3 a) POI Corporation has 8% coupon bonds outstanding which would be matured in 11 years. The bonds pay interest semi-annually. It is known that the face value of the bond is $1000, and the yield to maturity is 7%. i. What is the market price of the bond (Assuming semi-annual compounding)? ii. Is it a premium bond, par bond, or discount bond? b) The common stock of DEF Limited pays a constant annual dividend of $4.95 a share forever. It is known that the discount rate is 16%. i. What is one share of this stock worth today? ii. Based on the dividend growth model or the constant dividend model, do you expect the stock price will increase, decrease, or remain unchanged a year later (compared to today)?
Question 3 a) POI Corporation has 8% coupon bonds outstanding which would be matured in 11 years. The bonds pay interest semi-annually. It is known that the face value of the bond is $1000, and the yield to maturity is 7%. i. What is the market price of the bond (Assuming semi-annual compounding)? ii. Is it a premium bond, par bond, or discount bond? b) The common stock of DEF Limited pays a constant annual dividend of $4.95 a share forever. It is known that the discount rate is 16%. i. What is one share of this stock worth today? ii. Based on the dividend growth model or the constant dividend model, do you expect the stock price will increase, decrease, or remain unchanged a year later (compared to today)?
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:Question 3
a) POI Corporation has 8% coupon bonds outstanding which would be matured in 11 years. The
bonds pay interest semi-annually. It is known that the face value of the bond is $1000, and the
yield to maturity is 7%.
i. What is the market price of the bond (Assuming semi-annual compounding)?
ii. Is it a premium bond, par bond, or discount bond?
b) The common stock of DEF Limited pays a constant annual dividend of $4.95 a share forever.
It is known that the discount rate is 16%.
i. What is one share of this stock worth today?
ii. Based on the dividend growth model or the constant dividend model, do you expect the stock
price will increase, decrease, or remain unchanged a year later (compared to today)?
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