MCQ 10-16 If a bond's value rises above its par value during...
If a bond's value rises above its par value during its life, interest rates have:
The Fleming Corporation paid a dividend of $0.45 last year. Over the next 12 months, the dividend is expected to grow at 13 percent, which is the constant growth rate for the firm. The new dividend after 12 months will represent D1. The required rate of return is 18 percent.
Compute the price of a common share. (Round the final answer to 2 decimal places.)
Common share price ______ $
Triple Peaks Playhouse will pay a quarterly dividend of $0.50 at the end of the next quarter. It has common share price of $40.00 and a constant growth rate of 4 percent.
Compute the required rate of return. (Round the final answer to 2 decimal places.)
Required rate of return _______ %
10 - 16)
The relation between bond price and it's interest rate is inverse. i.e., when price increases interest decreases and vice-versa
so answer is Gone down
10 - 29)
share price = D1 / Ke - growth
where Ke = required return
D1 = 0.45*(1+13%) = 0.5085
Share price = 0.5085 / (18% - 13%)
10 - 34)
Quarterly dividend = 0.50
annual dividend = 0.50*4 = 2
Ke =( D1 / P0 ) + g
Ke = (2 / 40) + 4%
Ke = 9%
(NOTE : here it is assumed that dividend paid for remaining three quarters,and the given growth rate is annual.otherwise answer would be different)
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