PRINCIPLES OF FINANCEQuestion 4You are required to answer the following questions by showing relevant workings.

Question

PRINCIPLES OF FINANCEQuestion 4You are required to answer the following questions by showing relevant workings.

1. Compute the value of a bond that matures in 20 years, makes an annual coupon payment of RM40, and has a par value of RM1,000 by assuming that the required rate of return is 10%. (3 Marks)

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2. Bunga Raya Berhad's preferred stock pays an RM0.30 annual dividend. Calculate the value of the stock if your required rate of return is 15%. (3 Marks)

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3. Bunga Kertas Berhad's common stock has a beta of 1.2. If the expected risk-free return is 4% and the market offers a risk premium of 7% over the risk-free rate, what is the expected return on Bunga Kertas Berhad's common stock?(3 Marks)

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4. Bunga Orkid Berhad paid last year a dividend (Do) of RM2.20 on its common stock. The company's dividend is expected to grow at a constant rate of 3% indefinitely. If the required rate of return on this stock is 18%, compute the value of Bunga Orkid Berhad's common stock in year 5. (3 Marks)

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5. You predict that the common stock of Bunga Kantan Berhad will pay a dividend of RM2.50 at the end of year one, and RM3.00 at the end of year two. You also expect to be able to sell the common stock at the end of year two for RM55.00. if you require a 15% rate of return on this investment, how much are you willing to pay for a share of Bunga Kantan Berhad common stock today? (4 Marks)(Total: 15 Marks)

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Answer 1

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