Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

Problems are to be worked in order. Remember to show any assumptions that you used.  All work is to be completed individually. You can use Excel, a financial calculator or solve the problems by hand.

1. Starbucks has one debt issue outstanding. Debt matures on August 15, 2017, and has a 6.25% coupon. Coupons are paid semi annually. Bond is priced to yield 1.61% compound semi annually. Estimate price of the bond on February 15, 2013, immediately after that coupon is paid.

2. You buy a SML Bond for $980. Bond has a face value of $1000 and an annual coupon rate of 8%.  There are 5 years left until maturity.

a. Find the yield to maturity on the bond?

b. At the end of two years, price has risen to $1050.  What is the yield to maturity based on new price?

c. As of a special delivery by the stork, you decide to sell bond at the end of year 2 for $1050.  What was your return?  Why does this vary from the yield to maturity? Suppose you do get the first two coupon payments.

3. You have following information for Starbucks: Current EPS is $1.79. The present dividend is $.68 per share. The return on equity is 24%.  The present price is $49.22. 

a. Use dividend discount model (also known as constant growth model) to compute the return for Starbucks.


b. Suppose your answer to part a. is correct, compute the present value of the growth opportunities (PVGO).

4. Tank Industries Washers expects to pay following dividends over the next 4 years: $2.50, $3.20, $4.75 and $5.20 respectively (starting at time 1).

a. After year 4, the firm expects a constant growth rate of 3%.  If investors need 11%, what is the present share price?

b. The CEO, Major Payne, has identified numerous new investment opportunities.  He is trying to convince investors to back his strategy.  He will require to keep the dividends at $2.50 each year for the next four years. After year 4, the growth rate will be 10% forever.  Based on increased risk, the other investors increase the required return to 15%.  Should they back his strategy? Hint: Re-estimate the present price based on the new cash flows.

5. BAC is considering an issue of preferred stock.  The dividends are 8.12% of the $25 par value. 

a. If the present price is $26.25 per share, find the return on the preferred stock?

b. Assume the preferred stock would mature in 20 years.  If price is $26.25 per share, what is the return on the preferred stock? HINT: This is just like a bond, but face value is 25.  For a problem, you could suppose dividends are annual.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M92016

Have any Question? 


Related Questions in Basic Finance

1 explain the rationale behind time series designs2

1. Explain the rationale behind time series designs. 2. Describe the simple interrupted time series design. 3. Why is contemporary history a threat to internal validity in a simple interrupted time series design?

1 what dangers are encountered by mortgagees and unreleased

1. What dangers are encountered by mortgagees and unreleased mortgagors when property is sold "subject to" a mortgage? 2. What is the difference between equity of redemption and statutory redemption? 3. What special adva ...

Temple-midland inc is issuing a 1000 par value bond that

Temple-Midland, Inc. is issuing a $1000 par value bond that pays 8.5% annual interest and matures in 15 years. Investors are willing to pay $949 for the bond and Temple faces a tax rate of 20%. What is Temple's after-tax ...

An annual survey of first-year college students asks 270000

An annual survey of first-year college students asks 270,000 students about their attitudes on a variety of subjects. According to a recent survey, 54% of first-year students believe that abortion should be legal. Use a ...

Explain why option traders often use spreads instead of

Explain why option traders often use spreads instead of simple long or short options and combined positions of options and stock ? Suppose that an option trader has a call bull spread. The stock price has risen substanti ...

1 explain the differences between transactional and

1. Explain the differences between transactional and relationship marketing. How do these differences lead to increasing emphasis on logistical performance in supply chain management? 2. Why are the four primary service ...

You buy a stock for 35 per share one year later you receive

You buy a stock for $35 per share. One year later you receive a dividend of $3.50 per share and sell the stock for $30 per share. What is your total rate of return on this investment? What is your capital gain or loss yi ...

1 what is the novelty effect and how does it affect a

1. What is the novelty effect, and how does it affect a study's external validity? 2. Describe one way in which the experimenter may threaten the external validity of the results of a study. 3. How does sensitization thr ...

Suppose that you are a wheat farmer answer the following

Suppose that you are a wheat farmer. Answer the following questions. a. It is September, and you intend to have 50,000 bushels of wheat harvested and ready to sell in November. The current spot market price of wheat is $ ...

Phillips rock and mud is trying to determine the maximum

Phillips Rock and Mud is trying to determine the maximum amount of cash dividends it can pay this year. Assume its balance sheet is as follows: Assets Cash $ 386,000 Accounts receivable 836,000 Fixed assets   1,048,000   ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen