Please show how it works in Financial Calculator. For ex. N 30 I 5 PMT O FV- 100

ID: 2620943 • Letter: P

Question

Please show how it works in Financial Calculator. For ex. N 30 I 5 PMT O FV- 1000 CPTPV-? a bond if the par value is $1000, coupon rate is 5% (paid semi-annually, has 20 years to maturity and the market rate (yield to maturity per annum) is 8%? A. $683.11 B. $703.11 C. $813.11 D. $923.11 E 1,063.113br What is the coupon rate of a bond with a par value of $1000, it is currently selling for $800, has 15 years to maturity and the market rate (yield to maturity) is 10% per annum? Assume the coupon payments are made monthly. A 6.66% B. 7.77% C. 8.88% D. 9.99% E 10.10% paid for ABC stock was $3.25. The company is expected to grow at 6% in the next 4 years and then have a constant growth of 3% after that forever. The cost of capital (equity) is 5%. what should be the stock price of this company now? A $15312 B. $172.67 C. $187.33 D. $198.77 E $213.15 What is the price of The dividend that was just

Explanation / Answer

Question 1

Inputs for calculator are:

FV = 1000

i/Y = 8%/2 = 4% (semi-annual YTM)

N = 20 * 2 = 40 (semi-annual periods)

PMT = 5% * $1000/2 = 25 (semi-annual coupon)

Compute PV --> CPT PV = $703.11 (this would show up as a negative number on calculator. This implies it would be a cash outflow, and opposite in polarity as compared to the face value and coupon payment. Answer is Option B.

Question 2

FV = $1000

PV = - $800 (Negative sign indicates it would be a cash outflow)

N = 15 * 12 = 180 (months)

i/Y = 10%/12 = 0.833% (monthly)

PMT = 6.18 (monthly) --> Monthly coupon payment

Yearly Coupon = 6.18 * 12 = 74.21

Coupon % =74.21/1000 * 100 = 7.42% --> Closest to 7.77% (option C)'

Question 3

This question requires us to calculate the dividend stream expected in future

Yr 0

Yr 1

Yr 2

Yr 3

Yr 4

Yr 5

Dividend

3.25

3.445

3.652

3.871

4.103

4.226

Growth rate

Terminal value is present value of constant growing dividends expected from year 5

Terminal value (Yr 4) = D5/(r - g) = 4.226/(5% - 3%) = $211.3071.

Now, in order to calculate the the prsent value of dividends and terminal value, we need to use NPV function.

CF0 = 0

CF1 = 3.4450

CF2 = 3.6517

CF3 = 3.8708

CF4 = 4.1030 + Terminal Value = 4.1030 + 211.3071 = 215.4101

CPT NPV. i = 5%. Press down arrow key.

NPV = $187.16 ---> Closest to Option C (Answer)