1. Marco Chip, Inc just issued zero-coupon bonds with a par value of $1000. The
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Question
1. Marco Chip, Inc just issued zero-coupon bonds with a par value of $1000. The bond has a maturity of 14 years and a yield to maturity 0f 6.96%, compound semi-annually. What is the current price of the bond? Round the answer to two decimal places.
2. Giant Co. has just issued preferred stock with a par value of $100 and an annual dividend rate of 8.26%. If your required rate of return is 8.69%, how much will you be willing to pay for one share of this preferred stock? Round the answer to two decimal places.
3. The last dividend of Delta, Inc was $2.69, the growth rate of dividend is expected to be 2.46% and the required rate of return on this stock is 12.46%. What is the stock price according to the constant growth dividend model? Round the answer to two decimal places.
Explanation / Answer
1 Par Value 1000 YTM 3.48% 6.96/2 since semianually compounded Coupon 0.00 Maturity 14 Current Price 619.46 2 Par Value 100 where YTM 8.69% Coupon 8.26 8.26% dividend rate Pp = the preferred stock price, Maturity 1 Dp = the preferred dividend, and Current Price 95.05 r = the required return on the stock Pp = Dp/r 3 Dividend 2.69 Dividend growth 2.46% Rate of return 12.46% Current Price 26.90 Value of the stock =Dividend per share/(Discount rate - Dividend growth rate)
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