Valuation of Stock

Question 1

Solution

Bond A

Face value (PV) = $60,000

Maturity= 20 years

Fv= $43200+$36,000=$79,200

Bond B

Face value= $60,000

Maturity= 20 years

Coupon= 0

R= 12% compounded semi-annually

Question 2

Solution

Maturity= 18 years

C= 9% semiannually

Par value= $1,045

Question 3

Solution

DPS0=$77

R=9.2%

G=2.6%

Question 4

Solution

DPS0= 1.50

DPS1=

DPS2=

DPS3= 1.53*(1-(0.15-0.05) =$1.377

Question 5

  1. Solution

Current price= $25

DPS= $ 0.50

G= 3%

Quarterly payments

Effective Annual Interest Rate

Current gains yield

Dividend yield

  1. Solution

Constant quarterly dividends

P0=$25

P1=?

  1. Solution

k = 5.16%

0123 Years

|

gs = 0%

gs = 3%/4

gn = 3%/4

|||

0.50 0.500.5040.508

 P0=?= 23.52=

CFt0 0.50 24.02

Calculation

  1. Solution

k = 5.16%

0 123 Years

gs = 8%/4

gs = 5%/4

gn = 3%/4

| |||

0.50 0.51 0.51640.52

 P0=?= 24.0741=

CFt0 0.51 24.59

Calculation

  1. Solution

References

Investopedia, LLC (2011). Advanced Bond Concept:Bond Pricing. Available athttp://www.investopedia.com/advanced-concept/bond_pricingRetrieved [16th November 2015].

Menezes, R. (2002). Finance: How to DetermineExpected Market Value of Stock. Available athttp://finance.zacks.com/determining-expected-market-value-stock-7645.htmlRetrieved [16th November 2015].