Question

1. You bought Adel stock at 80$ per share and hold the stock for 3 years. The company paid $2, $3 and $4 dividends in years 1, 2 and 3 respectively. What would the year 3 stock price need to be to meet your required rate of return of 13%?
2. Tom deposit $10,000 in a bank account and 10 years later he closes the account, which is worth $18,000. The annual rate of interest that Tom has earned over the 10 years is closest to:
3. What is the yield to maturity of a bond that pays a 6% coupon rate with semiannual coupon payments, has a par value of $1,000, matures in 15 years, and is currently selling for $803?
4. You borrow $25,000 to be repaid in 24 monthly installments of$1,212.17. The annual interest rate is closest to:

Answer 1

1). r = [(P3 + D1 + D2 + D3) / P0]^1/3 - 1

0.13 = [(P3 + $2 + $3 + $4) / $80]^1/3 - 1

(1.13)³ = [(P3 + $9) / $80]

1.4429 x $80 = P3 + $9

P3 = $115.43 - $9 = $106.43

2). r = [FV / PV]^1/n - 1 = [$18,000 / $10,000]^1/10 - 1 = [1.8]^0.1 - 1 = 1.0605 - 1 = 0.0605, or 6.05%

3). To find the YTM, we need to put the following values in the financial calculator:

INPUT	15*2=30		-803	(6%/2)*1,000=30	1,000
TVM	N	I/Y	PV	PMT	FV
OUTPUT		4.16

So, YTM = 2r = 2 x 4.16% = 8.32%

4). To find the rate, we need to put the following values in the financial calculator:

INPUT	24		25,000	-1,212.17	0
TVM	N	I/Y	PV	PMT	FV
OUTPUT		1.25

So, Annual Rate = 12r = 12 x 1.25% = 15%