Question

# The bonds issued by Sota Inc. bear a 6.5 percent coupon, payable semiannually. The bond matures...

The bonds issued by Sota Inc. bear a 6.5 percent coupon, payable semiannually. The bond matures in 14 years and has a \$1,000 face value. Currently, the bond sells at par. What is the yield to maturity?

The common stock of Pizzaria pays an annual dividend that is expected to increase by 8 percent annually. The required rate of return on the stock is 12 percent and sells for \$70.50 a share. What is the expected amount of the next dividend to be paid on Pizzaria’s common stock?

 1) When the bond sells at face/par value for any given coupon bond, the yield to maturity is equal to the coupon rate. The bonds issued by Sota Inc. will have a yield to maturity of 6.5% because the bonds bear a 6.5 percent coupon and are selling at par. 2) According to the dividend growth model. P0 = D1/(R-g) P0 is the price of the stock that is \$70.50. D1 is the next dividend amount. R is the required return on the stock that is 12%. g is the growth rate of the dividend that is 8%. 70.50 = D1/(.12 - .08) 70.50 = D1/(.04) D1 = 70.50*.04 D1 = 2.82. The expected amount of the next dividend to be paid on Pizzaria’s common stock is \$2.82.

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