Bradley, Inc. has a 9 percent coupon bond that matures in 5 years. The bond pays interest annually. What is the market price of a $1,000 face value bond if the yield to maturity is 7.56 percent?

AAA, Inc. pays a $2.25 annual dividend per share to preferred stock shareholders. If the required rate of return is 5.6%, what is the value of preferred stock?

Given about Bardley, Inc.'s bond,
Face value = $1000
coupon rate = 9%
years to maturity = 5
yield to maturity = 7.56%
annual coupon payment = 9% of 1000 = $90
price of the bond can be calculated on financial calculator using following values:
FV = 1000
PMT = 90
N = 5
I/Y = 7.56
compute for PV, we get PV = 1058.17
So market price of the bond is $1058.17
Option A is correct.
2). Given about AAA, Inc,
annual dividend D = $2.25
rate of return on preferred stock Kp = 5.6%
So, value of preferred stock using perpetual model is
Value = D/Kp = 2.25/0.056 = $40.18
Option D is correct.
Get Answers For Free
Most questions answered within 1 hours.