Finance

You are called in as a financial analyst to appraise the bonds of Olsen’s Clothing Stores. The $1,000 par value bonds have a quoted annual interest rate of 10 percent, which is paid semiannually. The yield to maturity on the bonds is 10 percent annual interest. There are 15 years to maturity.

Compute the price of the bonds based on semiannual analysis.

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b.)With 10 years to maturity, if yield to maturity goes down substantially to 8 percent, what will be the new price of the bonds?

Round “PV Factor” to 3 decimal points. Round your answer to 2 decimal places. Omit the “$” sign in your response

 

Stagnant Iron and Steel currently pays a $12.25 annual cash dividend (D0). They plan to maintain the dividend at this level for the foreseeable future as no future growth is anticipated. If the required rate of return by common stockholders (Ke) is 18 percent, what is the price of the common stock?

 

 

 

Ecology Labs, Inc., will pay a dividend of $6.40 per share in the next 12 months (D1). The required rate of return (Ke) is 14 percent and the constant growth rate is 5 percent.

For parts b, c, and d in this problem all variables remain the same except the one specifically changed. Each question is independent of the others.

a.)Compute P0.

b.)Assume Ke, the required rate of return, goes up to 18 percent; what will be the new value of P0?

 

c.)Assume the growth rate (g) goes up to 9 percent; what will be the new value of P0? Ke goes back to its original value of 14 percent.

d.)Assume D1 is $7.00; what will be the new value of P0? Assume Ke is at its original value of 14 percent and g goes back to its original value of 5 percent.

 

A firm pays a $4.80 dividend at the end of year one (D1), has a stock price of $80, and a constant growth rate (g) of 5 percent. Compute the required rate of return (Ke