B what relationship exists between the coupon

b. What relationship exists between the coupon interest rate and yield to maturity
and the par value and market value of a bond? Explain.
Chapter 7
P7–6
Common stock value: Zero growth Kelsey Drums, Inc., is a well-established
supplier of fine percussion instruments to orchestras all over the United States.
The company’s class A common stock has paid a dividend of $5.00 per share per
year for the last 15 years. Management expects to continue to pay at that amount
for the foreseeable future. Sally Talbot purchased 100 shares of Kelsey class A
common 10 years ago at a time when the required rate of return for the stock was
16%. She wants to sell her shares today. The current required rate of return for the
stock is 12%. How much capital gain or loss will Sally have on her shares?

P7–8
Common stock value: Constant growth Use the constant-growth model (Gordon
growth model) to find the value of each firm shown in the following table.
Firm Dividend expected next year Dividend growth rate Required return
A $1.20 8%
B 4.00 5
C 0.65 10
D 6.00 8
E 2.25 8
13%
15
14
9
20
P7–9
Common stock value: Constant growth McCracken Roofing, Inc., common stock
paid a dividend of $1.20 per share last year. The company expects earnings and dividends
to grow at a rate of 5% per year for the foreseeable future.
a. What required rate of return for this stock would result in a price per share of $28?
b. If McCracken expects both earnings and dividends to grow at an annual rate of
10%, what required rate of return would result in a price per share of $28?
g
P7–14