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Unformatted text preview: / FINA4332—Fan 2011
Student name: 51 lET “H DAN (1; Points
Instructions The homework is due on Saturday, November 12, 2011 (any time during Saturday,you can leave
your homework under my door if I am not there). On Sunday, November 13, I will post the
solutions. Your solutions should appear on this document. I will not accept loose leaf homework
assignments and assignments after 11:59pm on Saturday, November 12, 2011 1. Ten years ago a stock paid a $0.30 dividend. Since then it has split 2 newfor—l old,
twice. The current dividend is $0.16. If you have a required rate of return of 14 percent,
what is the most you can pay for this stock?(Hint: ﬁrst calculate the dividend growth rate
from these two dividends, be careful with the most recent dividend, think what would it have been if the two splits had not occurred) J U m i 6 A I“ a
Do; ,‘30/2;£.15 “'3 e5><ti+c3)w:." "7 awfﬁg ‘1 30055 135% 4
pm: $.26
v) P: D... : 1, .0
Y's “\L}_,00€5 2. An 8percentcoupon bond sells for $800 and matures in seven years. Calculate its yield
to maturity, assuming the following:
a. The bond pays a single annual interest payment.
b. The bond pays interest semiannually. . . v: N > a
“l N'~ iv ~>I% 92.49%, 1;) N: W «91/, \ (vi/{LS} /0
PV: ‘800 PV: ‘30!) 0/
PM: i’mv‘og: g0 PM" if" Y‘rm; 1‘7, x1.
FV : 11m t "m : /U 3. A 7/14 percent bond is purchased fortythree days after the most recent interest payment.
How much accrued interest must be paid by the bond purchaser?(Assuine annual coupon payments and 365 days in a year) I o Campos“ 13¢le f. $[r0‘ka’oq‘: Accrmé’ci fk‘iiZwis’i lad/‘94" bi ?&‘“J LY Edi“; Phrckawk:
1940/35; x 4% : 12%sz 4. A certain mortgagebacked security has a yield to maturity of 13.5 percent but makes payments monthly. What is its effective annual yield? I Z _ a ‘y
K: 339% ~3E€fec+ive x/filal .; (21+ “35/11) vi : .l‘t39”: lit}? /.a X111 5. The Chock Full o’Nuts (CHF) 7s2012 bonds have a conversion price of $9.54. What is their conversion ratio?
9 I I I a
L : gaggq > «Cantur5!“ VK+K_.°;$1,UQ77 : m (by).
MISC“ 6&“V1Y5/‘w Va‘l i‘ 0 6. If the CHF 7s2012 bond in Problem 5 sells for $1,100 when the common stock is at $10,
what is the bond’s premium over conversion value? L5KV£V§ibk Value : $l0xl0‘t.3l: $iivqy’) Premium WW Oﬂixb’ZV‘ﬁark Valme :; $1,030 ‘* “(Ni—53.2: $9.3 7. A stock's current dividend is $3.56; eight years ago it was $2.78. What has been
the average annual dividend growth rate? no: 1.3.x ,
S2 t 3.59 . 3.55
D3 ‘ 3’56 ‘ D” l) l 2% a) V 233 8. A stock sells for $58; its current dividend is $1.50, and its dividend growth rate is
45.4%. What is the shareholder's required rate of return? De: 41.50 a D, : D0(l+3) :WLS Manse) : 2.1221 ~l: .031‘1‘: 5,i‘t% (3,: ‘t‘i‘fa/u
l5”: $58 DI “m " E ‘1I6 HIM
.qr:_',_.+c(r:———j——+.‘+‘f:.4l’  ~ 0 9. A company plans to pay a dividend of $2.45 next year and expects the dividend
will grow 3.5% per year indeﬁnitely into the future. If the required rate of return
on equity is 11%, what would be a fair price for this stock today? p‘ v: “2&5 %:.19% Y" 2 [(0/0 ‘ l7» : D' : $1.6“; «I F3151}
we}, .tl~.a°>5 10. A company plans to pay a dividend of $1.45 next year, $1.87 the following year,
and $1.95 three years from now. Thereafter, it is expected that the dividend will grow 4.5% per year indeﬁnitely into the future. If the required rate of return is
13.2%, what would be a fair price for this stock today? D»: $1199
« z {.33} ‘ D ’ 10%
DL i; 0‘5 ‘>t>..;§7.€15x(i~twsr:§2.aq e5: 7” : W; : 1713.45
1:? {fly/oi r I 13.1% Jud0+9 '
i I rate .
P » ms + 1.31 + mg+3 : (ht?th
a 2 M51 Hut 1.13) 11.An investor assigns a required rate of return of 12.65% to a stock selling for
$45.12 with a P/E ratio of 21. What percentage of the firm’s current value comes from growth opportunities? I
PVCrd: QqB,[2«—j§%é}_‘_ : $13.14
. l 2&‘4:.61%}:6LZ}%
trim, 5i: CuthM‘ Vail/u: Gamma“; 6mm CyVﬁwi‘i‘ ”PF”"+“'\HN‘>Z 12. A stock sells for $33.65 and currently pays a $0.55 annual dividend. If the market
expects a 15% rate of return on this stock, what dividend growth rate do these ﬁgures imply?
h ;t§t5 ; DD:.55 3 v:.B
. 5 r C 1+ ) .
V_ mu+%>+? a 5;;E;:__ﬁgwﬂ Soa15:.59tiﬁg.+%u53
 P 3355 o _) Ltifq‘Jr‘B i: 54.2? .7 (3, ; .1115; 13.190/0 13. A stock sells for $33, has a required rate of return of 11.5%, and current earnings
of $3.25. What is its present value of growth opportunities (PVGO)? F: 533“, v‘: H.970 ; E?— 323.15
islg E _ a'l~~ «oE :‘E”
p:,fw&o Moran? r $> “5. Y‘ : i H? 14. A ﬁrm has a return on equity of 11.75% and a dividend payout rate of 35%. What
is its sustainable growth rate?
ROE ; HH’Q‘V;
VNMeNi Payﬁd vac+< : 3 ‘3 0/3 WW“ We ; HEW. ><( lgsﬂ/g) : .D‘HPCf: 4.64% gusﬁvnrnabiﬂ 15. Twoyear certiﬁcates of deposit yield 5.40%; a oneyear CD has a 4.82% rate.
What is the oneyear forward rate? /
 '5. “(0‘7 u . : if. 3 7") 4 L .
R 7’ y ’ a [L (I +Rl\ Vs,
C\+R>L; {HLH Hip») 2} 15m 1; ~
~ H'ill
q GLZW4 : ‘0qu : Saga/0
' ' 1 1+,0LHE1 16. What is the duration of a $1,000 par value bond with a coupon rate of 6%, a yield
to—maturity of 8%, and 4 years left to maturity? (Assume annual coupon payments)
a; hmn,xmeﬂéo F; Myra
R : \I'TM: ,os
_. I“ “r a W 2 $433.36..
T70: 53%
PMT; 65
‘ \/ ': 11W .
C knitﬂuh [PENN ,O$L(l,03) LOX .////:W P: 17. What is the duration of a $1,000 par value bond with a coupon rate of 7%, a yield
tomaturity of 4%, and 2 years left to maturity? (Interest payments are made semi
annually.) IV; let‘? V ~>{>\/: ‘lii(05},lé K: I96): [fa/a/Z:L
(L : PMT: 4\,m><¥/Z : $515 F: FV : “m N L029“— toz~ thkct Lam)ch
WWW” _ (Hm‘ilxw w I~>< 399‘ » +__+l;__
C *[ R‘HHLV" f n+2)” _ .oﬁxltolq in 1.054311,
P\/ .L) \) ~ 3.3} semianan FNMA jar limit yin/rs 18. You own $5,000 par of the XY Z 85 of 09; they sell for 94% of par. The bond paid
interest six months ago, and pays again tomorrow. How much is the next interest
check? ...
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 Fall '11
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