Question

Q1.A 20-year, $1,000 par value bond has a 7.50% coupon rate with interest paid semiannually. The bond currently sells for $875. What is the capital gains yield on these bonds?

Q2.U.S. Treasury 30 year maturity, zero coupon bonds are currently selling in the marketplace with a yield to maturity of 7.00%. Even though the bonds have a coupon rate of 0.00%, please assume semi–annual compounding, which is the bond market convention? If inflation increased unexpectedly, forcing the nominal required rate of return on these Treasury bonds to increase by 1.25% to 8.25%, by what dollar amount would the current market price of these bonds decrease?

Q3. A share of common stock has just paid a dividend of $4.50. If the expected long-run growth rate for this stock is 6%, and if investors' required rate of return is 10.5%, what is the stock’s intrinsic value?

Q4. M. Roussakis Inc.'s stock currently sells for $45.00 per share. The stock’s dividend is projected to increase at a constant rate of 4% per year. The required rate of return on the stock, rs, is 14.50%. What is Roussakis' expected price 5 years from now?

Q5. Dominant Conglomerate's preferred stock pays a dividend of $1.40 per quarter. If the price of the stock is $75.00, what is its nominal (not effective) annual expected rate of return?

Answer 1

I can only answer 1 question at a time, so I am answering only question 1.

Q1. We will first find the YTM (yield-to-maturity) of the bond, and then current yield of the bond,
then we will use this formula to find the capital gains yiels: YTM = current yield + capital gains yield

Let YTM = y, there =fore, by bond-pricing equation:

|Solving using equation solver, we get , y= 0.0884 = 8.84%
Current yield= = 8.571%
Now, capital gains yield = YTM - current yield = 8.84% - 8.571% = 0.269%

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