AuthorTopic: please can you help me on the following problems
fin83
@2014-11-12 07:46:30
1)Consider a bond with face value of \$2,000 which pays a 4% annual coupon (this is the interest payment). The bond matures in 12 years. The current yield on bonds with similar characteristics is 3%. Assume that the first interest payment is one year from now – calculate the current price of the bond.

2)The market expects the dividends paid by Company X to grow at a constant rate equal to g. The current ex-dividend price of the stock is \$40. The value of the first dividend to be paid next period is \$1.20 and the discount rate is 5%. What is the growth rate, g, of the stock?

3)Consider a case of perfect capital markets without frictions or taxes. In addition, suppose that proficient arbitrageurs are active in this market, so that all arbitrage opportunities have been taken away. Company Y’s stock currently trades at \$12 per share. Tomorrow, it will pay a dividend of \$3. What is the ex-dividend price of the stock?

4)Calculate the market capitalization rate for a firm that has no growth opportunities and pays all earnings out in the form of dividend payments. Analysts expect the firm’s earnings to stay constant going forward, at \$5 per share. The current stock price of the firm is \$60.