Exam2AdditionalPracticeProblems

Exam2AdditionalPracticeProblems - account, which earns 4...

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FINC 3610 - Yost FINC 3610: Principles of Business Finance Exam #2 Additional Practice Problems 1. Yostmeister, Inc., just paid a $2.50 dividend yesterday. Analysts anticipate dividends will grow at 16 percent for each of the next 3 years, followed by growth of 5 percent per year indefinitely. If analysts estimate the required rate of return on stocks of this risk is 12 percent, how much would you expect to pay today for a share of Yostmeister, Inc.? 2. Yost Corp. does not currently pay any dividends. However, the firm expects to begin paying dividends in 25 years with a $5 payout per share, after which dividends will grow at 6 percent forever. If the market requires a 16 percent rate of return on stocks of this risk, what is the current stock price of Yost Corp.? 3. Granny Mae has been helping her favorite grandchild save. She has given you $1 each year on your birthday, starting when you turned one, and taken you to deposit it in your bank
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Unformatted text preview: account, which earns 4 percent each year. You have not deposited or withdrawn any other money. You just turned 21. However, Granny Mae is forgetful, and she forgot to give you money on your 10 th and 20 th birthdays. How much is in your account today? 4. Your firm just issued $1,000 par value bonds that mature in 30 years. The bonds pay semiannual coupons and have a coupon rate of 8.5 percent. A. If the yield to maturity is 8 percent, what is the current price of these bonds? B. If the price of the bonds is $948.25 right now, what is the yield to maturity? 5. You decide to go car shopping and have your eye on a very nice convertible on which you talk the salesman down to $34,495. You decide to finance the entire price of the vehicle with a 60 month loan from the dealership at an 8 percent APR compounded monthly. How much interest do you pay in the sixth month?...
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This note was uploaded on 12/11/2011 for the course FINC 3610 taught by Professor Yost during the Fall '08 term at Auburn University.

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