[juicy1]

Bond Pricing.

A 6-year Circular File bond pays interest of $80 annually and sells for $950.

What is its coupon rate, current yield, and yield to maturity?

[Jfaye]

Please help me with the problems.


1. Midland oil has $1,000 par value bonds outstanding at 8 percent interest. The bonds will mature in 25 years. Compute the current price of the bonds if the present yield to maturity is:
a. 7%
b. 10%
c. 13%

2. Go to table 10-1 which is based on bonds paying 10 % interest for 20 years. Assume interest rates in the market ( yield to maturity) decline from 11 % to 8%:
a. what is the bond price at 11%
b. what is the bond price at 8%
c. what would be your percentage return on investment if you bought when rates 11 % and sold when rates were 8 %

3. North Pole Cruise lines issued preferred stock many years ago. It carries a fixed dividend of $ 6 per share . With the passage of time, yields have soared from the original 6 % to 14% percent yield is the same as required rate of return).
a. what was the original issues price?
b. what is the current value of this preferred stock?
c. if the yield on the standard &Poor’s preferred stock declines, how will the price of the preferred stock be affected.

4. Analogue technology has preferred stock outstanding that pays a $9 annual dividend. It has a price of $76. What` is the required rate of return ( yield on ton the preferred stock?

5. Friedman stell company will pay a dividend of 41.50 per share in the nect 12 months (D1). The required rate of return (ke) is 10 percent and the constant growth rate is 5 percent.
a. compute P0
( for parts b,c, and d in this problem all variables remain the same except the one specially changed. Each equation in independent of the others.
b. assume ke, the required rate of return, goes up to 12%; that will be the new value of P0?
c. assume the growth rate (g) goes up to 7 %; what will be the new value of P0?
d. assume D1 is $2, what will be the new value of P0?

6. affirm pays a $ 4.90 dividend at the end of year one (D1), has a stock price of $70, and a constant growth rate (g) of 6 percent. Compute the