Required: a. Spencer Co's common stock is expected to have a dividend of $5 per share for each of the next 14 years, and it is estimated that the market value per share will be $143 at the end of 14 years. If an investor requires a return on investment of 8%, what is the maximum price the investor would be willing to pay for a share of Spencer Co. common stock today? b. Mario bought a bond with a face amount of $1,000, a stated interest rate of 6%, and a maturity date 12 years in the future for $989. The bond pays interest on an annual basis. Three years have gone by and the market interest rate is now 14%. What is the market value of the bond today? c. Alexis purchased a U.S. Series EE savings bond for $150, and ten years later received $389.11 when the bond was redeemed. What average annual return on investment did Alexis earn over the ten years?
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
![Answer the following questions. Table 6-4 or Table 6-5. (Use appropriate factor(s) from the tables provided. Round the PV factors to
4 decimals.)
Required:
a. Spencer Co's common stock is expected to have a dividend of $5 per share for each of the next 14 years, and it is estimated that
the market value per share will be $143 at the end of 14 years. If an investor requires a return on investment of 8%, what is the
maximum price the investor would be willing to pay for a share of Spencer Co. common stock today?
b. Mario bought a bond with a face amount of $1,000, a stated interest rate of 6%, and a maturity date 12 years in the future for $989.
The bond pays interest on an annual basis. Three years have gone by and the market interest rate is now 14%. What is the market
value of the bond today?
c. Alexis purchased a U.S. Series EE savings bond for $150, and ten years later received $389.11 when the bond was redeemed. What
average annual return on investment did Alexis earn over the ten years?
Complete this question by entering your answers in the tabs below.
Required A
Required B
Required C
Alexis purchased a U.S. Series EE savings bond for $150, and ten years later received $389.11 when the bond was redeemed.
What average annual return on investment did Alexis earn over the ten years?
Alexis's average annual return on investnment
%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F432d0e5b-976a-477c-8f94-be3c5e253b00%2F0adc0d38-c9b7-4c97-91ef-63d1d44cb46b%2F87ekarm_processed.png&w=3840&q=75)
![TABLE 6.4
FACTORS FOR CALCULATING THE PRESENT VALUE OF $1
Discount Rate
No. of
Periods
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
1
0.980
0.9615
0.9434
0.9259
0.9091
0.8929
0.8772
0.8621
0.8475
0.8333
0.961
0.9246
0.8900
0.8573
0.8264
0.7972
0.7695
0.7432
0.7182
0.6944
0.6086
0.5158
0.942
0.8890
0.8396
0.7938
0.7513
0.7118
0.6750
0.6407
0.5787
0.924
0.8548
0.7921
0.7350
0.6830
0.6355
0.5921
0.5523
0.4823
0.906
0.8219
0.7473
0.6806
0.6209
0.5674
0.5194
0.4761
0.4371
0.4019
6
0.888
0.7903
0.7050
0.6302
0.5645
0.5066
0.4556
0.4104
0.3704
0.3349
7
0.871
0.7599
0.6651
0.5835
0.5132
0.4523
0.3996
0.3538
0.3139
0.2791
8
0.853
0.7307
0.6274
0.5403
0.4665
0.4039
0.3506
0.3050
0.2660
0.2326
9
0.837
0.7026
0.5919
0.5002
0.4241
0.3606
0.3075
0.2630
0.2255
0.1938
10
0.820
0.6756
0.5584
0.4632
0.3855
0.3220
0.2697
0.2267
0.1911
0.1615
11
0.804
0.6496
0.5268
0.4289
0.3505
0.2875
0.2366
0.1954
0.1619
0.1346
12
0.788
0.6246
0.4970
0.3971
0.3186
0.2567
0.2076
0.1685
0.1372
0.1122
13
0.773
0.6006
0.4688
0.3677
0.2897
0.2292
0.1821
0.1452
0.1163
0.0935
14
0.758
0.5775
0.4423
0.3405
0.2633
0.2046
0.1597
0.1252
0.0985
0.0779
15
0.743
0.5553
0.4173
0.3152
0.2394
0.1827
0.1401
0.1079
0.0835
0.0649
16
0.728
0.5339
0.3936
0.2919
0.2176
0.1631
0.1229
0.0930
0.0708
0.0541
17
0.714
0.5134
0.3714
0.2703
0.1978
0.1456
0.1078
0.0802
0.0600
0.0451
18
0.700
0.4936
0.3503
0.2502
0.1799
0.1300
0.0946
0.0691
0.0508
0.0376
19
0.686
0.4746
0.3305
0.2317
0.1635
0.1161
0.0829
0.0596
0.0431
0.0313
20
0.673
0.4564
0.3118
0.2145
0.1486
0.1037
0.0728
0.0514
0.0365
0.0261
21
0.660
0.4388
0.2942
0.1987
0.1351
0.0926
0.0638
0.0443
0.0309
0.0217
22
0.647
0.4220
0.2775
0.1839
0.1228
0.0826
0.0560
0.0382
0.0262
0.0181
23
0.634
0.4057
0.2618
0.1703
0.1117
0.0738
0.0491
0.0329
0.0222
0.0151
0.0126
0.0105
24
0.622
0.3901
0.2470
0.1577
0.1015
0.0659
0.0431
0.0284
0.0188
25
0.610
0.3751
0.2330
0.1460
0.0923
0.0588
0.0378
0.0245
0.0160
30
0.552
0.3083
0.1741
0.0994
0.0573
0.0334
0.0196
0.0116
0.0070
0.0042
35
0.500
0.2534
0.1301
0.0676
0.0356
0.0189
0.0102
0.0055
0.0030
0.0017
40
0.453
0.2083
0.0972
0.0460
0.0221
0.0107
0.0053
0.0026
0.0013
0.0007
45
0.410
0.1712
0.0727
0.0313
0.0137
0.0061
0.0027
0.0013
0.0006
0.0003
50
0.372
0.1407
0.0543
0.0213
0.0085
0.0035
0.0014
0.0006
0.0003
0.0001
TABLE 6.5
FACTORS FOR CALCULATING THE PRESENT VALUE OF AN ANNUITY OF $1
Discount Rate
No. of
Periods
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
1
0.980
0.9615
0.9434
0.9259
0.9091
0.8929
0.8772
0.8621
0.8475
0.8333
2
1.942
1.8861
1.8334
1.7833
1.7355
1.6901
1.6467
1.6052
1.5656
1.5278
3
2.884
2.7751
2.6730
2.5771
2.4869
2.4018
2.3216
2.2459
2.1743
2.1065
3.0373
3.6048
4
3.808
3.6299
3.4651
3.3121
3.1699
2.9137
2.7982
2.6901
2.5887
4.713
4.4518
4.2124
3.9927
3.7908
3.4331
3.2743
3.1272
2.9906
6
5.601
5.2421
4.9173
4.6229
4.3553
4.1114
3.8887
3.6847
3.4976
3.3255
6.472
6.0021
5.5824
5.2064
4.8684
4.5638
4.2883
4.0386
3.8115
3.6046
6.7327
7.4353
8
7.325
6.2098
5.7466
5.3349
4.9676
4.6389
4.3436
4.0776
3.8372
8.162
6.8017
6.2469
5.7590
5.3282
4.9464
4.6065
4.3030
4.0310
10
8.983
8.1109
7.3601
6.7101
6.1446
5.6502
5.2161
4.8332
4.4941
4.1925
11
9.787
8.7605
7.8869
7.1390
6.4951
5.9377
5.4527
5.0286
4.6560
4.3271
12
10.575
9.3851
8.3838
7.5361
6.8137
6.1944
5.6603
5.1971
4.7932
4.4392
13
11.348
9.9856
8.8527
7.9038
7.1034
6.4235
5.8424
5.3423
4.9095
4.5327
14
12.106
10.5631
9.2950
8.2442
7.3667
6.6282
6.0021
5.4675
5.0081
4.6106
15
12.849
11.1184
9.7122
8.5595
7.6061
6.8109
6.1422
5.5755
5.0916
4.6755
16
13.578
11.6523 10.1059
8.8514
7.8237
6.9740
6.2651
5.6685
5.1624
4.7296
17
14.292
12.1657 10.4773
9.1216
8.0216
7.1196
6.3729
5.7487
5.2223
4.7746
18
14.992
12.6593 10.8276
9.3719
8.2014
7.2497
6.4674
5.8178
5.2732
4.8122
19
15.678
13.1339 11.1581
9.6036
8.3649
7.3658
6.5504
5.8775
5.3162
4.8435
20
16.351
13.5903 11.4699
9.8181
8.5136
7.4694
6.6231
5.9288
5.3527
4.8696
21
17.011
14.0292
11.7641
10.0168
8.6487
7.5620
6.6870
5.9731
5.3837
4.8913
22
17.658
14.4511 12.0416
10.2007
8.7715
7.6446
6.7429
6.0113
5.4099
4.9094
23
18.292
14.8568 12.3034
10.3711
8.8832
7.7184
6.7921
6.0442
5.4321
4.9245
24
18.914
15.2470 12.5504
10.5288
8.9847
7.7843
6.8351
6.0726
5.4509
4.9371
25
19.523
15.6221 12.7834
10.6748
9.0770
7.8431
6.8729
6.0971
5.4669
4.9476
30
22.396
17.2920 13.7648
11.2578
9.4269
8.0552
7.0027
6.1772
5.5168
4.9789
35
24.999
18.6646 14.4982
11.6546
9.6442
8.1755
7.0700
6.2153
5.5386
4.9915
40
27.355
19.7928 15.0463
11.9246
9.7791
8.2438
7.1050
6.2335
5.5482
4.9966
45
29.490 20.7200 15.4558
12.1084
9.8628
8.2825
7.1232
6.2421
5.5523
4.9986
50
31.424
21.4822 15.7619
12.2335
9.9148
8.3045
7.1327
6.2463
5.5541
4.9995](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F432d0e5b-976a-477c-8f94-be3c5e253b00%2F0adc0d38-c9b7-4c97-91ef-63d1d44cb46b%2Fuhylqy8_processed.png&w=3840&q=75)
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