Copy of MGF301 Assignment 2 - Answers -3

Copy of MGF301 Assignment 2 - Answers -3 - a What are the...

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#1 Common Shares (par value) 300 Additional paid in capital 12199700 Retained Earnings 1300000 Net common equity 13500000 2. A $1,000 face value bond of Acme Inc. pays an annual coupon, carries a coupon rate of 6.75%, has 13 years to maturity, and sells at a yield to maturity of 7.5%. (a) What interest payments do bondholders receive each year? (b) At what price does the bond sell? (c) What is the bond price if the yield to maturity falls to 6%? (a) interest per year = 67.5 (b) price = ($939.06) (c) price = ($1,066.40) (a) 900? (b) 1,000? (c) 1,100? (a) yield to maturity= 8.69% (b) yield to maturity= 7.75% (c) yield to maturity= 6.95% #4 Solve for Coupon - Using trial and error and the PV function annual interest payment = 7.5882% price = ($1,020.00) 5. Below are the data for two stocks, both of which have a discount rate of 14 percent. Stock A Stock B Return on Equity 14% 12% Discount Rate 10% 10% Expected Earnings per share (time 1) $1.00 $2.50 Expected Dividends per share (time 1) $0.70 $1.00
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Unformatted text preview: a. What are the dividend payout ratios for each firm? b. What are the expected dividend growth rates for each firm? c. What is the estimated stock price for each firm? a. Dividend payout Stock A = .7/1 = 70% Dividend payout Stock B = 1/2.50 = 40% b. g=plowback ration x return on equity growth rate for Stock A = 4.20% growth rate for Stock B = 7.20% c. 12.06896552 35.71428571 6. United Sports will pay a dividend of $2.50 next year and $3 the year after. In time 3 dividends will be 5% higher than the previous year and this growth continue in perpetuity. If the discount rate is 13%, calculate a fair price for the stock of United Sports, Inc. P= 35.39823 3. A 30 year maturity bond with a coupon rate of 7.75% and face value of $1,000 makes semi-annual coupon payments. What is the bond’s yield to maturity if the bond is selling for: P A = P B = P = 2.50/(1.13) + 3/(1.13 2 ) + [(3x1.05)/(.13-.05)]/(1.13 2 )...
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