A 20-year bond has a face value (principal) of $1,000 and an annual coupon rate (APR)...

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A 20-year bond has a face value (principal) of $1,000 and an annual coupon rate (APR) of 6%, but it pays interest every month. The bond is always traded at par. (A) (20 pints) if you invest $500 in the bond, how much is the principal you are entitled to? (B) (20) how much interest would you be able to accumulate in a year if you could re-invest every interest payment back to the bond? 2. Assume that the current price of a stock could be expressed as So= D₁ " where r is the discount rate and g is the dividend growth rate. A. (20 points) If D₁ = $1, r= 10%, and g = 5%, what is the current stock price (So)? B. (20) what is the stock price at the end of year 5? C. (20) At the end of year 5, investors suddenly become more optimistic about the company and revise their expected annual rate of return on the stock (i.e., r) from 10% to 8% on a permanent basis. If dividends continue its original path of 5% annual growth rate, what is the appropriate stock price at the end of year 57 A 20-year bond has a face value (principal) of $1,000 and an annual coupon rate (APR) of 6%, but it pays interest every month. The bond is always traded at par. (A) (20 pints) if you invest $500 in the bond, how much is the principal you are entitled to? (B) (20) how much interest would you be able to accumulate in a year if you could re-invest every interest payment back to the bond? 2. Assume that the current price of a stock could be expressed as So= D₁ " where r is the discount rate and g is the dividend growth rate. A. (20 points) If D₁ = $1, r= 10%, and g = 5%, what is the current stock price (So)? B. (20) what is the stock price at the end of year 5? C. (20) At the end of year 5, investors suddenly become more optimistic about the company and revise their expected annual rate of return on the stock (i.e., r) from 10% to 8% on a permanent basis. If dividends continue its original path of 5% annual growth rate, what is the appropriate stock price at the end of year 57

Answer rating: 100% (QA)

SOLUTION A The face value principal of the bond is 1000 which is the amount the bondholder will receive when the bond matures If you invest 500 in the bond you are entitled to a portion of the face va... View the full answer