18 excel a bond with a par value of 1000 has a coupon

18. EXCEL A bond with a par value of $1,000 has a coupon rate of
7 percent and matures in 15 years. Using a spreadsheet program,
graph its price versus different yields to maturity, ranging from 1 per-
cent to 20 percent. Is the relationship between price and yield linear?
Why or why not?
19. Global Cycles (GC) offers investors a dividend reinvestment plan
(DRIP) program. An investor purchases 100 shares of GC at a price
of $20 per share on January 2. How many shares will the investor
own on December 31 if the following dividends are paid and the
investor participates in the DRIP program (assume the firm allows
fractional shares and accounts for them up to three decimal places)?
If the stock’s price is $27.50 on December 31, what is the value of
her investment in GC?
March 1: dividend paid of $0.50 per share; stock price is $21
June 1: dividend paid of $0.50 per share; stock price is $22.5
September 1: dividend paid of $0.55 per share; stock price is $19
December 1: dividend paid of $0.55 per share; stock price is $25
20. If a stock’s earnings per share are $2.00, what will be the dividend
per share if the payout ratio is 40 percent? If the following year’s
earnings per share are $2.10, what will the payout ratio be if the firm
wants to maintain dividend growth of 8 percent?
21. You purchased 200 shares of H2O Corporation stock at a price of
$20. Consider each of the following announcements separately. What
will the price of the stock be after each change? How many shares
will you own? What will be the total value of your holdings (value of
stock plus any income)?
a. The firm announces a 10 percent stock dividend.
b. The firm announces a two-for-one stock split.
c. The firm announces a $0.50 per-share dividend (in your answer
use the price of the stock on the ex-dividend date).
d. The firm announces it will repurchase 10 percent of its shares;
you do not offer to sell any of your shares.
22. The Fridge-Air Company’s preferred stock pays a dividend of
$4.50 per share annually. If the required rate of return on comparable
quality preferred stocks is 14 percent, calculate the value of Fridge-
Air’s preferred stock.
23. The Joseph Company has a stock issue that pays a fixed dividend
of $3.00 per share annually. Investors believe the nominal risk-
free rate is 4 percent and this stock should have a risk premium of
6 percent. What should be the value of this stock?
24. The Lo Company earned $2.60 per share and paid a dividend of
$1.30 per share in the year just ended. Earnings and dividends per
share are expected to grow at a rate of 5 percent per year in the future.
Determine the value of the stock:
a. The required rate of return is 12 percent.
b. The required rate of return is 15 percent.
c. Given your answers to (a) and (b), how are stock prices affected
by changes in investor’s required rates of return?
25. The French Thaler and Company’s stock has paid dividends of
$1.60 over the past 12 months. Its historical growth rate of dividends
has been 8 percent, but analysts expect the growth to slow to 5 percent
annually for the foreseeable future.