Suppose a 20-year Treasury bond with 5% semiannual coupon is currently traded at a yield of 6% (APR). 1) Is the price above or below 100? 2) What is the current price of the bond? 3) If the yield increased by 0.1% (that is, the yield increases to 6.1%), how much would the price change? Would the price increase or decrease? 4. Suppose a company just paid a dividend of $4. Its manager promises to pay annual dividend growing at 6% per year. If the required return is 12% (in EAR), what would the current price be? 1) Now assume the manager has decided to pay quarterly dividends instead of annual dividends. It has just paid a dividend of $1. The next dividend will be 3 months from now, with value equal to $1*1.061/4, and will grow at an annual rate of 6%. That is, each dividend payment will be 1.06* times the previous one. What is the share price now? 2) Now assume the dividend will grow more slowly at a rate of 2% per year from the 40" quarterly dividend. That is, the 41" dividend will be equal to the 40" dividend multiplied by 1.02 /*. What is the share price now?

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To answer your questions lets break them down one by one Question 1 A 20year Treasury bond with a 5 semiannual coupon is currently traded at a yield o... View the full answer