Question
10-16) Maritza has one share of stock and one bond. The total value of the two...
10-16)
Maritza has one share of stock and one bond. The total value of the two securities is 1,040 dollars. The bond has a YTM of 12.42 percent, a coupon rate of 11.92 percent, and a face value of 1,000 dollars; pays semi-annual coupons with the next one expected in 6 months; and matures in 19 years. The stock pays annual dividends and the next dividend is expected to be 9.8 dollars and paid in one year. The expected return for the stock is 19.68 percent. What is the price of the stock expected to be in 1 year?
Homework Answers
Answer #1
Current Value of Bond is calculated in excel and screen shot provided below:
Current Value of Bond is $963.82
Total Value of Holding = $1,040
So, Value of stock = $1,040 - $963.82
= $76.18
Value of stock is $76.19.
Expected stock price in year 1 = $76.19 × (1 + 19.68%) - $9.80
= $91.17 - $9.80
= $81.37
Expected stock price in year 1 will be $81.37.
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