0, 2017 McKerley Corp. has preferred stock with the first dividend exactly 12 ye
ID: 2789621 • Letter: 0
Question
0, 2017 McKerley Corp. has preferred stock with the first dividend exactly 12 years from today. If the required return is 3.9 percent. current price of the stock? ouistanding that will pay an annual dividend of $5 20 per share today. If the required return is 3.9 percent, what is the Harpeth Valley Water District has a bond outstanding with a coupon rate of 3.71 percent and semiannual payments. The bond matures in 24 years, with a yield to maturity of 4.23 percent, and a par value of $5,000. What is the market price of the bond? 18Explanation / Answer
Price at end of 11 years = Dividend in 12th year / Required return
= 5.20 / 3.9% = 133.33
Price today = 133.33 / (1+3.9%)^11 = 87.53
Coupon = 3.71% /2 * 5000 = 92.75
N = 48 and I = 4.23%/2 = 2.115%
Price of bond = 87.53 * PVIFA (n,i) + FV * PVIF (n,i)
= 87.53 * PVIFA (48 , 2.115%) + 5000 * PVIF (48 , 2.115%)
= 87.53 * 29.9676 + 5000 * 0.3662 = 4454.06
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