View the step-by-step solution to:

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:
Background image of page 1
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.
Background image of page 2
Sign up to view the entire interaction

Top Answer

The best way to approach your question... View the full answer

Solution of 533748_FIN.doc

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:-...

Sign up to view the full answer

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

-

Educational Resources
  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question
Ask a homework question - tutors are online