Question

19. The company just paid a dividend of $2.60 per share on its stock. The dividends are expected to grow at a constant rate of 3% per year forever. The required rate of return for this stock is 15%.What is expected dividend payment at the end of year 4?(Round answers to two decimals, enter your answers without any characters such as "$", or "," such as 1234.78)

12.

A corporate bond offers 9% coupon rate, compounded semi-annually. The maturity left is 7 years. The yield to maturity for bonds with such risks is 10%.

Which one of the following statements is correct?

		each coupon payment paid out is $50 per share
		10% is the interest rate you use as discount rate to find bond value
		each coupon payment paid out is $45 per share
		number of total coupon payments till maturity is 7

Answer 1

19.

Present dividend is $2.60 per share. The dividend growth rate is 3% per year. Therefore,

Future Dividend = Present Dividen*(1+growth rate)^n, where n is number of year.

= 2.60*(1.03)^4 = 2.9263% or 2.97$(rounded off to two)

12.

10% is the interest rate you use a discount rate to find bond value is the correct statement. We use Yield To Maturity at that point of time to calculate bond value. It is given as 10%.

Explanation of other option :

Coupon payments cannot be found as face value of the bond is not given. Therefore two option of coupon payment are wrong.

Coupon payments till maturity will be 7*2 = 14 as bonds pay semi-annual coupon payments. There this option is wrong

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