Peking Duct Tape Company has outstanding a $1,000-face-value bond with a 14 percent coupon rate and 3 years remaining until final maturity. Interest payments are made semi-annually.
a. What value should you place on this bond if your nominal annual required rate of return is (i) 14 percent? (ii) 16 percent?
b. The Ghafoor Company paid $ 2 of dividends this year. If its dividends are expected to grow at a rate of 3 percent per year, what is the intrinsic value for Ghafoor common stock if the required rate of return is 10% and life of investment is 3 years and the market price expected after 3 years is $22.

Answer rating: 100% (QA)

Answer i Value of Bond when the required rate of return is 14 Since the coupon rate and nominal rate ... View the full answer