Ember Technologies stock is expected to pay the first dividend of $3.00 at the end of...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Ember Technologies stock is expected to pay the first dividend of $3.00 at the end of three years. Once the firm starts paying dividends, analysts expect the dividends to grow at a supernormal rate of 7% for the next two years, and then attain a constant growth of 4.7% forever thereafter. The firm's beta is 1.2, the risk-free rate of return is estimated to be 5.4%, and the market risk premium is 4.5%. a) What is the required rate of return on Ember stock? b) What is the value of Ember's stock today? c) What is the value of the Ember Tech. stock expected to be in 3 years, if the required rate of return on the stock remains constant? Spark Inc. is looking to issue 20-year maturity public bonds for the first time. These bonds will pay an annual coupon rate. The bonds have been assessed to have the same risk as those of Flame Corp. The information about the Flame bonds is specified below: Maturity = 20 years; Current price = $979.86; a) What coupon rate should Spark set on the bonds in order to sell them at par value? b) Now, suppose Spark issues the bonds at par value by setting the coupon rate on the bond equal to the rate from part (a). What is the price of the bonds expected to be in 9 years, if the required rate of return on bonds of similar risk and maturity is 6.35% at that time? Par Value = $1,000; Coupon Rate = 5.5% paid semi-annually. c) If Serene purchased the Spark bonds at par value when they were issued, and sold them at the price in part (b) after 9 years, what rate of return did she realize on her investment? Ember Technologies stock is expected to pay the first dividend of $3.00 at the end of three years. Once the firm starts paying dividends, analysts expect the dividends to grow at a supernormal rate of 7% for the next two years, and then attain a constant growth of 4.7% forever thereafter. The firm's beta is 1.2, the risk-free rate of return is estimated to be 5.4%, and the market risk premium is 4.5%. a) What is the required rate of return on Ember stock? b) What is the value of Ember's stock today? c) What is the value of the Ember Tech. stock expected to be in 3 years, if the required rate of return on the stock remains constant? Ember Technologies stock is expected to pay the first dividend of $3.00 at the end of three years. Once the firm starts paying dividends, analysts expect the dividends to grow at a supernormal rate of 7% for the next two years, and then attain a constant growth of 4.7% forever thereafter. The firm's beta is 1.2, the risk-free rate of return is estimated to be 5.4%, and the market risk premium is 4.5%. a) What is the required rate of return on Ember stock? b) What is the value of Ember's stock today? c) What is the value of the Ember Tech. stock expected to be in 3 years, if the required rate of return on the stock remains constant? Spark Inc. is looking to issue 20-year maturity public bonds for the first time. These bonds will pay an annual coupon rate. The bonds have been assessed to have the same risk as those of Flame Corp. The information about the Flame bonds is specified below: Maturity = 20 years; Current price = $979.86; a) What coupon rate should Spark set on the bonds in order to sell them at par value? b) Now, suppose Spark issues the bonds at par value by setting the coupon rate on the bond equal to the rate from part (a). What is the price of the bonds expected to be in 9 years, if the required rate of return on bonds of similar risk and maturity is 6.35% at that time? Par Value = $1,000; Coupon Rate = 5.5% paid semi-annually. c) If Serene purchased the Spark bonds at par value when they were issued, and sold them at the price in part (b) after 9 years, what rate of return did she realize on her investment? Spark Inc. is looking to issue 20-year maturity public bonds for the first time. These bonds will pay an annual coupon rate. The bonds have been assessed to have the same risk as those of Flame Corp. The information about the Flame bonds is specified below: Maturity = 20 years; Current price = $979.86; a) What coupon rate should Spark set on the bonds in order to sell them at par value? b) Now, suppose Spark issues the bonds at par value by setting the coupon rate on the bond equal to the rate from part (a). What is the price of the bonds expected to be in 9 years, if the required rate of return on bonds of similar risk and maturity is 6.35% at that time? Par Value = $1,000; Coupon Rate = 5.5% paid semi-annually. c) If Serene purchased the Spark bonds at par value when they were issued, and sold them at the price in part (b) after 9 years, what rate of return did she realize on her investment?
Expert Answer:
Answer rating: 100% (QA)
a The required rate of return on Ember stock can be calculated using the capital asset pricing model ... View the full answer
Related Book For
Fundamentals of corporate finance
ISBN: 978-0470876442
2nd Edition
Authors: Robert Parrino, David S. Kidwell, Thomas W. Bates
Posted Date:
Students also viewed these accounting questions
-
Question 5 Not yet answered Marked out of 1.00 Flag question In a stack, if a user tries to remove an element from an empty stack it is called Select one: a. Overflow b. UNKNOWN c. Garbage Collection...
-
A stock is expected to pay dividends of $2.00 and $2.20 in the next two years and sell for a price of $45 at the end of two years. What will an investor who expects a 10 percent rate of return be...
-
Marta borrows Birr 5000 from a bank at 12% compounded monthly and promises to discharge the debt by equal payments at the end of each month for three years. Required: Find the amount of each payment...
-
The following data pertain to the securities of Linford Company during 2012, the companys first year of operations: a. Purchased 400 shares of Persimmon Corporation stock at $40 per share plus a...
-
Determine a1, a2, and c1 and c0 in terms of b1 and b2 so that the two systems in figure areequivalent. I(n) by Wn) Co x(n) a2
-
Do insurance companies use race as a determining factor when making insurance available? Fienberg (1985) gathered data from a report issued by the U.S. Commission on Civil Rights about the number of...
-
What does judicial notice mean? Can you give an example of a fact that the court may be able to take judicial notice of?
-
Luke's Lubricants starts business on January 1. The following operations data are available For January for the one lubricant it produces: Gallons Beginning inventory. . . . . . . . . . . . . . . . ....
-
An epicyclic gear train is shown in Fig.15.30. The main driving shaft G has a gear S, integrally mounted and driving the internal gear 4, on the casing through two intermediate gears P, mounted on...
-
? Dean and Ellen Price are married and have a manufacturing business. They bought a piece of business equipment (7-year personal property) on 4/1/2017 for $50,000. Use half-year convention to...
-
Design a BCD excess circuits that can able to take user input value(1 to 6). The value defines the excess value of BCD excess. Design a sequential circuit. Its output will be a binary value of 0-9....
-
You observe quarterly returns on a non - dividend paying stock of 6 . 9 4 % , 2 . 5 7 % , 2 . 4 1 % , - 4 . 9 9 % , and - 1 . 9 7 % . What is the geometric average return for this stock, expressed as...
-
Given the following hypothesis: H: H = 100 H: #100 A random sample of six resulted in the following values: 117 111 106 116 111 120 Using the 0.02 significance level, can we conclude that the mean is...
-
Submit two separate Microsoft Project files (.mpp) for grading as specified below, one for each problem. Only mpp files will be accepted for grading! Q1. Your company is planning to launch a new...
-
In what way are most firms in the US organized?
-
What is the standard deviation of the following observations: 2 3 % , 1 6 % , - 8 % , - 1 1 % , and 7 % , respectively Note: Enter your answer as a percentage rounded off to two decimal points.
-
United Booksellers is the fifth-largest retailer of publications on the West Coast in the United States. It started 15 years ago as a family-owned bookstore in Seattle, Washington, and has grown to...
-
Rewrite the code of Figure 7.3 in Ada, Java, or C#. Figure 7.3: template class queue { item items [max_items]; int next_free, next_full, num_items; public: queue () : next_free (0), next_full(0),...
-
Identify and explain the noncash expenses that a firm may incur.
-
Suppose that a biotech firm in Pittsburgh raised $120 million in an IPO. The firm received $23 per share, and the stock sold to the public for $25 per share. The firms legal fees, SEC registration...
-
Rockinghouse Corp. plans to issue seven-year zero coupon bonds. It has learned that these bonds will sell today at a price of $439.76. Assuming annual coupon payments, what is the yield to maturity...
-
A plot that represents how much of something there is may be misleading if the baseline is not at ______________________. In Exercises 3 and 4, fill in each blank with the appropriate word or phrase.
-
The population of country A is twice as large as the population of country B. True or false: If images are used to represent the populations, both the height and width of the image for country A...
-
If the baseline of a bar graph or time-series plot is not at zero, then the differences may appear to be __________________ than they actually are.
Study smarter with the SolutionInn App