Quiz 2 Problems.docx - Quiz 2 Problems Chapters 6 7 and 8...

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Quiz 2 Problems Chapters 6, 7, and 8 Chapter 7 Subscribe to view the full document.

1. Eastern Electric currently pays a dividend of \$1.64 per share and sells for \$27 a share. a. growth rate it 3%, what is the rate of return r = DIV 1 / P 0 + g = [(\$1.64 1.03)/27] + 0.03 = 0.0926 = 9.26% b. Required rate of return is 10%, what is the growth rate? If r = 0.10, then 0.10 = [(\$1.64 1.03)/27] + g g = 0.0374 = 3.74%. c. sustainable growth rate is 5%, plowback ratio is .4, what is the rate of return g = return on equity plowback ratio 5% = return on equity 0.4 return on equity = 0.125 = 12.5% Chapter 8 Subscribe to view the full document.

TI-84: APPS, Finance: irr(-36000, {25800,25800}, {1,1} TI-84: APPS, Finance: irr(-56000, {39000,39000}, {1,1} TI-84: APPS, Finance: npv(14,-30,{19,19,19},{1,1,1} TI-84: APPS, Finance: npv(14,-55,{30,30,30},{1,1,1} A = 14.11/30 B = 14.65/55 Subscribe to view the full document.

To solve b: APPS, Finance, TVM Solver: n=6, solve for I, PV=-4600, PMT=1550, FV=0, P/Y=1, C/Y=1 : to solve for I, you will have the cursor on I and then press ALPHA Enter Extra Practice Bonds – practice problems Chapter 6 1. A bond has a coupon rate of 7% and has 5 years until maturity. If the current yield to maturity is 5%, what is the price of the bond? What is the amount of the annual interest payment paid to the bondholder? \$1,086.59 2. An investor buys a 10-year, 7% coupon bond for \$990, holds it for 1 year, and then sells the bond for \$980. What was the investor's rate of return? 6.06% 3. What is the price of a zero coupon bond with a 20 year maturity and a yield to maturity of 6% and a par value of \$100,000? \$31,180.47 4. What is the current yield of a 10-year bond which cost \$980 and has a coupon rate of 9% 9.18% 5. If you paid \$980 for a 10 year bond that pays \$70 a year in interest. What is the bond’s yield to maturity? YTM = Annual interest pmt. + ((Par – Price) / (# yrs. to maturity)) (Yield) .60 (Price) + .40(Par) 7.29% Stock – practice problems Chapter 7 1. What is the dividend yield for a stock that currently pays a \$6 dividend per year and the most recent stock price was \$60? Ans. - \$6/\$60 = 10% 2. What should be the price of a stock that offers a \$5 annual dividend with no prospects of growth, and has a required return of 10 %? Ans. - \$5/.10 = \$50 3. What should be the current price of a stock if the expected dividend is \$5.00, the stock has a required return of 12%, and a constant dividend growth rate of 5%? Subscribe to view the full document.

Ans. - \$5/.12-.05 = \$71.43 4.  • Fall '19

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