Coupon Rates and Bond Prices

Complete the following problems: 5- Coupon Rates – Gabrielle Enterprises has bonds on the market making annual payments, with eight years to maturity, a par value of $1,000, and selling for $948. At this price, the bonds yield 5.1 percent. What must the coupon rate be on the bonds? 6- Bond Prices – Weismann Co. issued 15-year bonds a year ago at a coupon rate of 5.3 percent. The bonds make semiannual payments and have a par value of $1,000. If the YTM on these bonds is 4.5 percent, what is the current bond price? 7- Bond Yields – West Corp. issued 25-year bonds two years ago at a coupon rate of 5.3 percent. THe bonds make semiannual payments. If these bonds currently sell 105% of par value, what is the YTM? 14- Nominal and Real Returns – Say you own an asset that had a total return last year of 11.65%. If the inflation rate last year was 2.75%, what was your real return? 26- Using Bond Quotes – Suppose the following bond quotes IOU Corporation appear in the financial page of today’s newspaper. Assume the bond has a face value of $2,000 and the current date is April 19, 2018. What is the yield to maturity of the bond? What is the current yield? 31- Real Cash Flows – You want to have $2.5 million in real dollars in an account when you retire in 40 years. The nominal return on your investment is 10.3% and the inflation rate is 3.7%. What real amount must you deposit each year to achieve your goal? 5(Page 265) – Common versus Preferred Stock – Suppose a company has a preferred stock issue an a common stock issue. Both have just paid a $2 dividend. Which do you think will have a higher price, a share of the preferred or a share of the common? 12(Page 266) – Stock Valuation and PE – The Perfect Rose Co. has earnings of $3.18 per share. The benchmark PE for the company is 18. What stock price would you consider appropriate? What if the benchmark PE were 21? 15 – Nonconstant Growth – Metalica Bearings, Inc., is a young start up company. No dividends will be paid on the stock over the next nine years because the firm needs to plow back its earnings to fueld frowth. The company will pay a dividend of $17 per share 10 years from today and will increase the dividend by 3.9 percent per year thereafter. If the required return on this stock is 12.5 percent, what is the current share price? 16 – Nonconstant Dividents. Maurer, Inc., has an odd dividend policy. The company has just paid a dividend of $2.75 per share and has announced that it will increase the dividend by $4.50 per share for each ofthe next five years and then never pay another dividend. If you require a return of 11 percent on the company’s stock how much will you pay for a share today? 18 – Supernormall Growth – Synovec Co. is growing quicky. Dividends are expected to grow at a rate of 30 percent for the next three years, with the growth rate falling of to a constant 4 percent thereafter. If the required return is 11 percent, and the company just paid a dividend of $2.45, what is the current share price? 20 – Negative Growth- Antiques R Us is a mature manufacturing firm. The company just paid a dividend of $9.80, but management expects to reduce the payout by 4 percent per year indefinitely. If you require a return  of 9.5 percent on this stock, what will you pay for a share today?

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