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# 1. Summit systems will pay a dividend of \$1.50 this year. If you expect summits dividend to grow by 6% per year, what is its price per share if its

1. Summit systems will pay a dividend of \$1.50 this year. If you expect summits dividend to grow by 6% per year, what is its price per share if its equity cost of capital is 11%?
2. Dorpa Corporation has a dividend yield of 1.5%. Dorpac’s equity cost of capital is 8 %, and its dividends are expected to grow at a constant rate. What is the expected to growth rate of Dorpac’s dividends?
3. Assume that a bond will make payments every six months as shown on the following timeline using six-month periods): 0 1 2 3

20
a. What is the maturity of the bond (in years)?
b. What is the coupon rate (in percent)?
c. What is the face value?

4. Suppose the current zero-coupon yield curve for risk-free bonds is as following
Maturity (years) 1 2 3 4 5
YTM 5.00% 5.50% 5.75% 5.95% 6.05%

a. What is the price per \$100 face value of a two –year, zero-coupon, risk-free bond?
b. What is the price per \$100 face value of a four-year, zero-coupon risk-free bond?
c. What is the risk-free interest rate for a five-year maturity?
5. Kell Industries has a share price of \$22 today. If Kell is expected to pay a dividend of \$0.88 this year, and its stock price is expected to grow to \$23.54 at the end of the year, what is Kell’s dividend yield and equity cost of capital?
Maturity (years) 1 2 3 4 5
Zero-coupon 4.00% 4.30% 4.50% 4.70% 4.80%
6. What is the price today o a two-year, default free security with a face value of \$1000
and an annual coupon rate of 6%. Does this bond trade a discount, at par, or at premium?
7. The prices of several bonds with face value of \$1000 are summarized in the following table:
Bond A B C D
Price \$972.50 \$1040.75 \$1150.00 \$1000.00
For each bond, state whether it trades at a discount, at par or at a premium.

1. Summit systems will pay a dividend of \$1.50 this year. If you expect summits dividend to grow by 6% per year, what is its price per share if its equity cost of capital is 11%? 2. Dorpa Corporation has a dividend yield of 1.5%. Dorpac’s equity cost of capital is 8 %, and its dividends are expected to grow at a constant rate. What is the expected to growth rate of Dorpac’s dividends? 3. Assume that a bond will make payments every six months as shown on the following timeline using six-month periods): 0 1 2 3 20 a. What is the maturity of the bond (in years)? b. What is the coupon rate (in percent)? c. What is the face value? 4. Suppose the current zero-coupon yield curve for risk-free bonds is as following Maturity (years) 1 2 3 4 5 YTM 5.00% 5.50% 5.75% 5.95% 6.05% a. What is the price per \$100 face value of a two –year, zero-coupon, risk-free bond? b. What is the price per \$100 face value of a four-year, zero-coupon risk-free bond? c. What is the risk-free interest rate for a five-year maturity? 5. Kell Industries has a share price of \$22 today. If Kell is expected to pay a dividend of \$0.88 this year, and its stock price is expected to grow to \$23.54 at the end of the year, what is Kell’s dividend yield and equity cost of capital? Maturity (years) 1 2 3 4 5 Zero-coupon 4.00% 4.30% 4.50% 4.70% 4.80% 6. What is the price today o a two-year, default free security with a face value of \$1000 and an annual coupon rate of 6%. Does this bond trade a discount, at par, or at premium? 7. The prices of several bonds with face value of \$1000 are summarized in the following table:
Bond A B C D Price \$972.50 \$1040.75 \$1150.00 \$1000.00 For each bond, state whether it trades at a discount, at par or at a premium.

1. Summit systems will pay a dividend of \$1.50 this year. If you expect summits dividend to
grow by 6% per year, what is its price per share if its equity cost of capital is 11%? Solution:-...

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