.\'ll AT&T; 1:59 Assignment-on-Second-leg-of… 4. Suppose Micron Technology sold
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.'ll AT&T; 1:59 Assignment-on-Second-leg-of… 4. Suppose Micron Technology sold today an issue of bonds with a 15year maturity, a S1,000 par value, a 10 percent annual coupon, and semi-annual years after they are issued. If the bonds were called, Micron Technology would pay a call premium of 10 percent and six months extra interest. I interest payments. The bonds are callable six. (a) Two years after the bonds were issued, the going rate of interest on bonds such as these fell to 8 percent. At what price bonds sell at the end of year 2? would these (b) What is the yield to first call 2 years after the initial offering if the conditions of part (a) hold? 5. Intel paid a dividend of $2.60 today. Analysts expect the following dividend payouts for the next three years: At the end of year 1: S2.90; year 2: $3.10; and at the end of year 3 S4.00 Beginning year 4, dividends will be constant at $4.00 per year. Analysts expect a 12 percent return from Intel's common stock. (a) What is the price of Intel's common stock today? (b) What wl be the price one year from now if the dividend forecast for Intel remains unchanged but analysts begin to expect instead a 14 percent return from Intel's common stock? currently pays a dividend of S2 per share and 6. Stuart Prod this dividend is expected to grow at a 8 percent annual rate for3 years, then at a 10 percent rate for the next 3 years, after which it is expected to grow at a constant rate of 5 percent rate forever. What value would you place on the stock if an 18 percent rate of return were required on the stock? ucts 7. What is the present value of a 8 percent preferred stock that is expected to yield a return of 10 percent per year? 8. The common stock of Jensen Shipping has an expected return of 16.3 percent. The return on the market is 10.8 percent and the risk free rate of return is 3.8 percent. What is the beta of this stock?Explanation / Answer
4 a)
After two years:
n=13*2=26
pmt=50
rate = 4
FV=1000
Using excel:
=PV(0.04,26,50,1000)
=$1,159.83
b)
YTC:
n=4*2=8
pmt=50
rate = 4
FV=1100+50=1150
=RATE(8,50,1159.83,1150)
=8.44%
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