MA373 F15 Homework Chapter 7 Solutions

MA373 F15 Homework Chapter 7 Solutions - Chapter 7 Fall...

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October 22, 2015 Copyright Jeffrey Beckley 2015 Chapter 7 Fall 2015 1. The stock of Jones Corporation pays a quarterly dividend of 5.60. The next dividend is due in 3 months. Using the dividend discount method, calculate the price of the stock to yield an annual effective interest rate of 8%. Solution: (4) 0.25 0.25 0.25 0.25 0.50 0.75 0.08 0.08 0.08 0.08 0.25 0.25 0.08 5.60 5.60 Price 288.27 (1.08) 1 4 5.60 0 5.60(1.08) Price 5.60 5.60 5.60 ... 288.27 1 1 (1.08) i Or v v v v v
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October 22, 2015 Copyright Jeffrey Beckley 2015 2. The preferred stock of Bian Bank pays a quarterly dividend of 8.75. The next dividend is paid in one month. The stock is bought to yield 12% convertible quarterly. Using the dividend discount method, calculate the price of the stock. Solution: 2/3 2/3 (4) (4) 1/12 1/12 4/12 7/12 3/12 4 1/12 3/1 8.75 8.75 0.12 Price 1 1 297.47 0.12 4 4 4 4 8.75 0 Price 8.75 8.75 8.75 ... 1 0.12 1 1 0.12550881 4 8.75(1.12550881) 0 1 (1.12550881) i i i i i i i Or v v v v v i 2 297.47 3.
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