What happens to the price of a 3-year bond (with par value $1,000) with an 8% co

Question

What happens to the price of a 3-year bond (with par value $1,000) with an 8% coupon when interest rates change from 4 to 7%? O A price increase of $85 O A price decrease of $85 0 A price increase of $90.47 0 A price decrease of $90.47 The value of common stock will likely decrease if. the investment horizon decreases. ?the growth rate of dividends increases ( the cost of equity increases O dividends are not discounted to the present. If next year's dividend is forecast to be $12.00, the constant-growth rate is 4.5%, and the discount rate is 12%, then the current stock price should be O 160 O 167.2 O 184.55 O 127.41 0 192.52 What cons ant growth rate in dividends is expected for a stock valued at $50.00 if next vear's dividend is forecast at $2.00 and the appropriate discount rate is 13%? O 8% ? 7.25% O 9.75% O 11.38% ? 9% (Ctrl-

Explanation / Answer

Question – 2

The value of common stock will likely decrease if “the cost of Equity Increase”

Question - 3

The Current Stock Price should be “$160”

Current Stock Price = Next Year Dividend / [Ke-g]

= $12 / [0.12 – 0.045]

= $12 / 0.075

= $160

Question – 4

“Constant Growth Rate = 9%”

P0 = D1 / [ Ke – g ]

$50.00 = $2.00 / [0.13 - g]

[0.13 - g] = 0.04

g = 0.13 – 0.04

g = 0.09

g = 9%

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