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|
Get Answers For Free
Most questions answered within 1 hours.