Project #15627 - Valuing Financial Assets

Say you own an asset that had a total return last year of 15 percent. Assume the inflation rate last year was 2.5 percent.

 

Required:

What was your real return? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

 

  Real return

%   

 

Bond J has a coupon rate of 4 percent. Bond S has a coupon rate of 14 percent. Both bonds have 10 years to maturity, make semiannual payments, and have a YTM of 8 percent.

 

Requirement 1:

If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places (e.g., 32.16).)

 

 

Percentage
change in price

  Bond J

%  

  Bond S

%  


 

Requirement 2:

If interest rates suddenly fall by 2 percent instead, what is the percentage change in the price of these bonds? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)

 

 

Percentage
change in price

  Bond J

%  

  Bond S

%  

 

BDJ Co. wants to issue new 25-year bonds for some much-needed expansion projects. The company currently has 7.8 percent coupon bonds on the market that sell for $1,125, make semiannual payments, and mature in 20 years.

 

Required:

What coupon rate should the company set on its new bonds if it wants them to sell at par? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

 

  Coupon rate

%  

 

Suppose your company needs to raise $30 million and you want to issue 20-year bonds for this purpose. Assume the required return on your bond issue will be 7.5 percent, and you’re evaluating two issue alternatives: a 7.5 percent semiannual coupon bond and a zero coupon bond. Your company’s tax rate is 35 percent.

 

Requirement 1:

 

(a)

How many of the coupon bonds would you need to issue to raise the $30 million? (Do not round intermediate calculations. Enter the whole number for your answer, not millions (e.g., 1,234,567).)

 

  Number of coupon bonds

 

 

(b)

How many of the zeroes would you need to issue? (Do not round intermediate calculations. Enter your answer in dollars, not millions (e.g., 1,234,567). Round your answer to 2 decimal places (e.g., 32.16).)

 

  Number of zero coupon bonds

 

 

Requirement 2:

 

(a)

In 20 years, what will your company’s repayment be if you issue the coupon bonds? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars (e.g., 1,234,567).)

 

  Coupon bonds repayment

$  

 

(b)

What if you issue the zeroes? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars (e.g., 1,234,567). Round your answer to the nearest whole dollar amount (e.g., 32).)

 

  Zero coupon bonds repayment

$  

 

Requirement 3:

Assume that the IRS amortization rules apply for the zero coupon bonds.

  

Calculate the firm’s aftertax cash outflows for the first year under the two different scenarios. (Do not round intermediate calculations. Input a cash outflow as a negative value and a cash inflow as a positive value. Enter your answers in dollars, not millions of dollars (e.g., 1,234,567). Round your answers to 2 decimal places (e.g., 32.16).)

 

   

  Coupon bond cash flow

$  

  Zero coupon bond cash flow

$  

 

To calculate the number of years until maturity, assume that it is currently May 2013.

 

Rate

Maturity
Mo/Yr

Bid

Asked

Chg

Ask
Yld

??          

May 18     

103.5362     

103.8235     

+.3204        

2.18      

5.850       

May 23     

104.1762     

104.3850     

+.4513        

??        

6.125       

May 36     

??        

??        

+.6821        

3.87      


 

Required:

In the above table, find the Treasury bond that matures in May 2023. What is your yield to maturity if you buy this bond? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

 

  Yield to maturity

%  

 

Below, you will find Treasury bond quotes. To calculate the number of years until maturity, assume that it is currently May 2013.

 

Rate

Maturity
Mo/Yr

Bid

Asked

Chg

Ask
Yld

??          

May 18     

103.5362     

103.8235     

+.3204        

2.18      

5.850       

May 23     

104.1762     

104.3850     

+.4513        

??        

6.125       

May 36     

??        

??        

+.6821        

3.87      


 

Requirement 1:

In the above table, find the Treasury bond that matures in May 2036. What is the asked price of this bond in dollars? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

 

  Asked price

$  

 

Requirement 2:

If the bid-ask spread for this bond is .0628, what is the bid price in dollars? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

 

  Bid price

$  

 

To calculate the number of years until maturity, assume that it is currently May 2013.

 

Rate

Maturity
Mo/Yr

Bid

Asked

Chg

Ask
Yld

??          

May 18     

103.5362     

103.8235     

+.3204        

2.18      

5.850       

May 23     

104.1762     

104.3850     

+.4513        

??        

6.125       

May 36     

??        

??        

+.6821        

3.87      


 

Required:

In the above table, find the Treasury bond that matures in May 2018. What is the coupon rate for this bond? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

 

  Coupon rate

%  

 

To calculate the number of years until maturity, assume that it is currently January 15, 2013.

 

Company
(Ticker)

Coupon

Maturity

Last
Price

Last
Yield

EST $ Vol
(000’s)

  Xenon, Inc. (XIC)

5.400   

Jan 15, 2020     

94.183       

??       

57,362      

  Kenny Corp. (KCC)

7.125  

Jan 15, 2017     

??          

6.02      

48,941      

  Williams Co. (WICO)

??     

Jan 15, 2026     

94.735       

6.85      

43,802     


 

Required:

What is the yield to maturity for the bond issued by Xenon, Inc.? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g.,32.16).)

 

  Yield to maturity

%  

 

To calculate the number of years until maturity, assume that it is currently January 15, 2013.

 

Company
(Ticker)

Coupon

Maturity

Last
Price

Last
Yield

EST $ Vol
(000’s)

  Xenon, Inc. (XIC)

5.400   

Jan 15, 2020     

94.183       

??       

57,362      

  Kenny Corp. (KCC)

7.125  

Jan 15, 2017     

??          

6.02      

48,941      

  Williams Co. (WICO)

??     

Jan 15, 2026     

94.735       

6.85      

43,802     


 

Requirement 1:

What price would you expect to pay for the Kenny Corp. bond? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

 

  Price

$  

 

Requirement 2:

What is the bond’s current yield? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

 

  Current yield

%  

 

To calculate the number of years until maturity, assume that it is currently January 15, 2013.

 

Company
(Ticker)

Coupon

Maturity

Last
Price

Last
Yield

EST $ Vol
(000’s)

  Xenon, Inc. (XIC)

5.400   

Jan 15, 2020     

94.183       

??       

57,362      

  Kenny Corp. (KCC)

7.125  

Jan 15, 2017     

??          

6.02      

48,941      

  Williams Co. (WICO)

??     

Jan 15, 2026     

94.735       

6.85      

43,802     


 

Required:

What is the coupon rate for the Williams Co. bond? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

 

  Coupon rate

%  

 

Nofal Corporation will pay a $4.60 per share dividend next year. The company pledges to increase its dividend by 6.75 percent per year, indefinitely.

 

Required:

If you require a return of 11 percent on your investment, how much will you pay for the company’s stock today? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

 

  Current stock price

$  

 

Raffalovich, Inc., is expected to maintain a constant 5.65 percent growth rate in its dividends, indefinitely.

 

Required:

If the company has a dividend yield of 4.15 percent, what is the required return on the company’s stock? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

 

  Required return

%  

 

Suppose you know that a company’s stock currently sells for $66.10 per share and the required return on the stock is 9 percent. You also know that the total return on the stock is evenly divided between capital gains yield and dividend yield.

 

Required:

If it’s the company’s policy to always maintain a constant growth rate in its dividends, what is the current dividend per share? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

 

  Dividend per share

$  

 

E-Eyes.com has a new issue of preferred stock it calls 20/20 preferred. The stock will pay a $20 dividend per year, but the first dividend will not be paid until 20 years from today.

 

 

Required:

 

If you require a return of 8.75 percent on this stock, how much should you pay today? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

 

 

  Current stock price

$  

 

Gontier Corporation stock currently sells for $64.73 per share. The market requires a return of 9 percent on the firm’s stock.

 

Required:

If the company maintains a constant 5.5 percent growth rate in dividends, what was the most recent dividend per share paid on the stock? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

 

  Dividend per share

 $  

 

You’ve collected the following information from your favorite financial website.

 

 

52-Week Price


Stock (Div)

Div
Yld %

PE
Ratio

Close
Price

Net
Chg

Hi

Lo

77.40       

10.43      

   Palm Coal 0.36

2.6      

6       

13.90    

–0.24    

55.96       

33.57      

   Lake Lead Grp 1.69

4.2      

10       

40.58    

–0.01    

130.93       

69.50      

   SIR 2.00

2.2      

10       

88.97    

3.07    

50.24       

13.95      

   DR Dime 0.80

5.2      

6       

15.43    

–0.26    

35.00       

20.74      

   Candy Galore 0.32

1.5      

28       

??      

0.18    


 

 

Find the quote for the Lake Lead Group. Assume that the dividend is constant.

 

 

Requirement 1:

What was the highest dividend yield over the past year? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

 

 

 

  Highest dividend yield

%  

 

Requirement 2:

What was the lowest dividend yield over the past year? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

 

 

 

  Lowest dividend yield

%  

 

 

 

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Due By (Pacific Time) 10/31/2013 04:00 pm
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