Question

1.

Given the following information, what is the percentage dividend yield between today and period 1?

Today’s Dividend =	$3.69
Expected Growth rate in dividends =	5.24
Discount Rate (Required return) =	8.24

Calculate your answer to two decimal places (e.g., 2.51)

2.

Given the following information, what is the stock price in period 2?

Today’s Dividend =	$4.45
Expected Growth rate in dividends =	4.51
Discount Rate (Required return) =	9.73

Calculate your answer to the nearest penny (e.g., 2.51)

3.

Given the following information, what is the stock price in period 1?

Today’s Dividend =	$3.21
Expected Growth rate in dividends =	3.06
Discount Rate (Required return) =	6.85

Calculate your answer to the nearest penny (e.g., 2.51)

4.

What is the price of a bond with the following features?

• Face Value = $1,000
• Coupon Rate = 2% (stated as an ANNUAL rate)
• Semiannual coupon payments
• Maturity = 9 years
• YTM = 6.71% (Stated as an APR

5.

Bond A has the following features:

         Face value = $1,000,       

Coupon Rate = 3%,       

Maturity = 9 years, Yearly coupons

         The market interest rate is 6.56%

What is the current yield for bond A from today to year 1?

Calculate your answer to 2 decimal places (e.g., 5.23)

6.

Bond A has the following features:

         Face value = $1,000,       

Coupon Rate = 4%,       

Maturity = 9 years, Yearly coupons

         The market interest rate is 7.62%

If interest rates remain at 7.62%, what is the percentage capital gain or loss on bond A if you sell the bond in year 1?

State your answer to 2 decimal places (e.g., 3.56, 0.29)

If there is a capital loss make sure to include a negative sign in your answer (e.g., -0.23)

7.

Assume you buy a bond with the following features

Bond maturity = 4
Coupon Rate = 4%
Face Value = $1,000
Annual Coupons

When you buy the bond the market interest rate = 3.33%
Immediately after you buy the bond the interest rate changes to 5.03%
What is the "reinvestment" effect in year 3 ?

8.

Given the following information, what is the dividend yield between period 1 and period 2?

Today’s Dividend =	$2.48
Expected Growth rate in dividends =	4.31
Discount Rate (Required return) =	9.05

Calculate your answer to the nearest penny (e.g., 2.51)

9.

You own a bond with the following features:

              Face value of $1000,

              Coupon rate of 3% (annual)

              15 years to maturity.

The bond is callable after 3 years with the call price of $1,052.

If the market interest rate is 4.89% in 3 years when the bond can be called, if the firm calls the bond, how much will it save or lose by calling the bond?

State your answer to the nearest penny (e.g., 84.25)

If there would be a loss, state your answer as a negative (e.g., -37.51)

Answer 1

1. Using the Dividend discount model,

P = (3.69 * ( 1+ 5.24%) ) / (8.24% - 5.24%) = 129.45

Price at period 1 (P1) = Dividend at period 2 / (r -g) = (3.69 * (1+5.24%)^2 ) /(8.24 %- 5.24%) = 136.23

Dividend yield is calculated using Dividend in trailing twelve month upon current stock price.

Dividend yield = Dividend at period 1 / price at period 1 = (3.69 * 1.0524 )/ 136.23= 2.85%