Problem 1

Suppose a German company issues a bond with a par value of 1,000, with 23 years to maturity, and a coupon rate of 3.8 percent paid annually. If the yield to maturity is 4.7 percent, what is the current price of the bond?

Problem 2

Suppose a US company issued 15-year bonds a year ago at a coupon rate of 4.9 percent. The bonds make semiannual payments and have a par value of $1,000. If the YTM on these bonds is 4.5 percent, what is the current bond price?

Problem 3

A Japanese company has a bond outstanding that sells for 105.43 percent of its 100,000 par value. The bond has a coupon rate of 3.4 percent paid annually and matures in 16 years. What is the yield to maturity of this bond?

Problem 4

A US company issued 25-year bonds two years ago at a coupon rate of 5.3 percent. The bonds make semiannual payments. These bonds currently sell for 105 percent of par value $1,000. (a) What rate of return do you expect to earn on your investment? (b) One year from now, the YTM on your bond has declined by 1 percent, and you decide to sell. For what price will your bond sell? (c) What is the total return on your investment?

Problem 5

A US company outstanding bonds have a $1,000 par value, and they mature in 25 years. Their nominal yield to maturity is 9.25%, they pay interest semiannually, and they sell at a price of $975. (a) What is the coupon rate on these bonds? (b) What is the current yield of the bond?

Problem 6

A company just paid a dividend of 1.19. The required rate of return is 12%, and the expected constant growth rate is 5%. What is the stock's current price?

Problem 7

A stock has a required rate of return of 11.5%, and it sells for 25 per share. Its dividend is expected to grow at a constant rate of 7%. What was the most recent dividend per share paid on the stock?

Problem 8

The next dividend payment will be 3.84 per share. The dividends are anticipated to maintain a constant growth rate of 7.2 percent. If the stock currently sells for 78 per share, what is the dividend yield? What is the required return?

Problem 9

A company just paid a dividend of 1.48. Analysts expect the company's dividend to grow by 25% this year, by 15% in Year 2, and by a constant rate of 6% in Year 3 and thereafter. The required return on this stock is 8%. What is the best estimate of the stock's current market value?

Problem 10

(a) Explain the difference between bonds and stocks.

(b) If you are an investor, holding bonds, what are you entitled to?

(c) If you are an investor, holding stocks, what are you entitled to?

(d) Explain the relationship between coupon and yield with regards to bond prices.