1. The next year the common stock of Gold Corp will pay a dividend of 2.10 per s
ID: 2772830 • Letter: 1
Question
1. The next year the common stock of Gold Corp will pay a dividend of 2.10 per share. If the company is growing at a rate of 4.03 percent per year and your required rate of return is 15% what is gold’s company stock worth to you? Round the answer to two decimal places.
2. Golden Rod Corp’s preferred stock is currently selling for $65.36. The company pay $5.42 annual dividends on this preferred stock. Which rate of return does the investor expect to receive on this stock if the stock is purchased today? Round the answer to two decimal places in percentage form.
3. Black Water Corp. just issued zero-coupon bonds with a par value of $1,000. The bonds has a maturity of 29 years and a yield to maturity of 10.83 percent, compound annually. What is the current price of bonds? Round the answer to two decimal places.
Explanation / Answer
1 Dividend 2.1 Dividend growth 4.03% Rate of return 15.00% Current Price 19.14 Value of the stock =Dividend per share/(Discount rate - Dividend growth rate) 2 Par Value 100 where Coupon 5.42 5.42% dividend rate Pp = the preferred stock price, Maturity 1 Dp = the preferred dividend, and Current Price 65.36 r = the required return on the stock Rate of teturn 8.29% Pp = Dp/r 3 Par Value 1000 YTM 10.83% Coupon 0.00 Maturity 29 Current Price 50.69
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