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# Key_ps3 - FINA215 Problem Solving Fall 2009 Problem set on...

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FINA215 Problem Solving Fall 2009 1 Problem set on Chapter 3, pp.90-92. 1. 935 = 75(PVIFA rr, 5 ) + 980(PVIF rr, 5 ) rr = 8.83% 4. EXCEL Problem: Bond Value = \$1,268.27 Bond Value = \$1,169.36 Bond Value = \$1,000.00 Bond Value = \$862.01 6. EXCEL Problem: Yield to Maturity = 9.87% Yield to Maturity = 9.19% Yield to Maturity = 7.69% Yield to Maturity = 5.97% 9. a. V b = 1,000(.1) (PVIFA 6%/2, 10(2) ) + 1,000(PVIF 6%/2, 10(4) ) = \$1,297.55 2 b. V b = 1,000(.1) (PVIFA 8%/2, 10(2) ) + 1,000(PVIF 8%/2, 10(4) ) = \$1,135.90 2 c. From parts a. and b. of this problem, there is a negative relation between required rates and fair values of bonds. 18. a. P o = 2.50(1 + .015) = \$24.167 .12 - .015 b. P 4 = 2.50(1 + .015) 5 = \$19.95 .15 - .015 20. Step 1: Find the present value of dividends during the period of supernormal growth. Year Dividends (D 0 (1 + g s ) t ) PVIF 10%, t Present Value 1 5.5(1 + .08) 1 = 5.940 .9091 5.400 2 5.5(1 + .08) 2 = 6.415 .8264 5.302 3 5.5(1 + .08) 3 = 6.928 .7513 5.205 4 5.5(1 + .08) 4 = 7.483 .6830 5.111 5 5.5(1 + .08) 5 = 8.081 .6209 5.018 6 5.5(1 + .08) 6 = 8.728 .5645 4.927 Present value of dividends during supernormal growth period \$30.963 Step 2: Find present value of dividends after period of supernormal growth a. Find stock value at beginning of constant growth period P 6 = D 7 = D 0 (1 + g s ) 6 (1 + g) 1 = 5.5 (1 + .08 ) 6 (1 + .03) 1 = \$128.423 k s - g k s - g .10 - .03 b. Find present value of constant growth dividends

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Key_ps3 - FINA215 Problem Solving Fall 2009 Problem set on...

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