Question

1)

The stock price of Dagobah Inc. is currently $46.40 per share. Dagobah Inc's investors have a required return of 11.7% and expect the dividend growth rate to be 4.5% forever. What was the dividend that Dagobah just paid?

Multiple Choice

• $3.13 per share

• $3.34 per share

• $2.86 per share

• $3.20 per share

• $3.73 per share

2)

What is the running yield of a $1,000 par value bond with a 6% coupon rate paid semiannually, if the bond is priced with a yield to maturity of 7% and it has 21 years to maturity?

Multiple Choice

• 6.52%

• 3.37%

• 6.74%

• 7.00%

• 3.26%

Answer 1

1) Price = D0 * (1 + g/(r - g)

D0 = Price * (r - g)/(1 + g)

Do = 46.40 *(0.117 - 0.045)/ (1 + 0.045)

D0 = 3.19693779904

D0 = $3.20 per share

2) r = 0.07/2 = 0.035

cpn = 1,000 * 0.06/2 = 30

n = 21 * 2

Running yield = (cpn*2)/Price

Running yield = (30 * 2)/890.8255859348

Running yield = 0.0673532518

Running yield = 6.73532518%

Running yield = 6.74%