Question

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?

Answer #1

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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Please answer those three questions clearly
At 5.5 percent bond matures in seven years, pays
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$945.08
$947.21
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Problem
(3 Points) Blue Water bonds have a face value of $1,000,
a coupon rate of 6.5 percent, semiannual interest payments, and
mature in 11.5 years. What is the current price of these bonds if
the yield to maturity (YTM) is...

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