Problem1. Sanders, Inc., paid a $4 dividend per share last year and is expected to continue to pay out 60% of its earnings as dividends for the foreseeable future. If the firm is expected to generate a 13% return on equity in the future, and if you require a 15% return on the stock, what is the value of the stock?
Problem2. A firm is planning on paying its first dividend of $2 three years from today. After that, dividends are expected to grow at 6% per year indefinitely. The stock's required return is 14%. What is the intrinsic value of a share today?
Problem3. You purchase a bond for $875. It pays $80 a year (that is, the half yearly coupon is 4%), and the bond matures after 10 years. What is the yield to maturity?
Problem4. Determine the current market prices of the following $1,000 bonds if the comparable rate is 10% and answer the given problems.
i) XY 5.25% (interest paid yearly) for 20 years AB 14% (interest paid yearly) for 20 years
ii) Which bond has a current yield that exceeds the yield to maturity?
iii) Which bond may you expect to be called? Why?
iv) If CD, Inc., has a bond with a 5.25% coupon and a maturity of 20 years but which was lower rated, what would be its price relative to the XY, Inc., bond? describe.