Must be completed in Excel
2. Assume that a bond will make payments every six months as shown on the following timeline
(using six-month periods):
0 1 2 3 20
$20 $20 $20 20+$1000
a. What is the maturity of the bond (in years)?
b. What is the coupon rate (in percent)?
c. What is the face value?
4. Suppose the current zero-coupon yield curve for risk-free bonds is as follows:
Maturity (years) 1 2 3 4 5
YTM 5.00% 5.50% 5.75% 5.95% 6.05%
a. What is the price per $100 face value of a two-year, zero-coupon, risk-free bond?
b. What is the price per $100 face value of a four-year, zero-coupon, risk-free bond?
c. What is the risk-free interest rate for a five-year maturity?
6. Suppose a 10-year, $1000 bond with an 8% coupon rate and semiannual coupons is trading for
a price of $1034.74.
a. What is the bond’s yield to maturity (expressed as an APR with semiannual compounding)?
b. If the bond’s yield to maturity changes to 9% APR, what will the bond’s price be?
7. Suppose a five-year, $1000 bond with annual coupons has a price of $900 and a yield to maturity
of 6%. What is the bond’s coupon rate?
11. Suppose that General Motors Acceptance Corporation issued a bond with 10 years until maturity,
a face value of $1000, and a coupon rate of 7% (annual payments). The yield to maturity
on this bond when it was issued was 6%.
a. What was the price of this bond when it was issued?
b. Assuming the yield to maturity remains constant, what is the price of the bond immediately
before it makes its first coupon payment?
c. Assuming the yield to maturity remains constant, what is the price of the bond immediately
after it makes its first coupon payment?
13. Consider the following bonds:
Bond Coupon Rate (annual payments) Maturity (years)
A 0% 15
B 0% 10
C 4% 15
D 8% 10
a. What is the percentage change in the price of each bond if its yield to maturity falls from 6%
b. Which of the bonds A–D is most sensitive to a 1% drop in interest rates from 6% to 5% and
why? Which bond is least sensitive? Provide an intuitive explanation for your answer.
3. Suppose Acap Corporation will pay a dividend of $2.80 per share at the end of this year and $3
per share next year. You expect Acap’s stock price to be $52 in two years. If Acap’s equity cost of
capital is 10%:
a. What price would you be willing to pay for a share of Acap stock today, if you planned to
hold the stock for two years?
b. Suppose instead you plan to hold the stock for one year. What price would you expect to be
able to sell a share of Acap stock for in one year?
c. Given your answer in part (b), what price would you be willing to pay for a share of Acap
stock today, if you planned to hold the stock for one year? How does this compare to your
answer in part (a)?
5. NoGrowth Corporation currently pays a dividend of $2 per year, and it will continue to pay
this dividend forever. What is the price per share if its equity cost of capital is 15% per year?
6. Summit Systems will pay a dividend of $1.50 this year. If you expect Summit’s dividend to grow
by 6% per year, what is its price per share if its equity cost of capital is 11%?
12. Procter & Gamble will pay an annual dividend of $0.65 one year from now. Analysts expect
this dividend to grow at 12% per year thereafter until the fifth year. After then, growth will level
off at 2% per year. According to the dividend-discount model, what is the value of a share of
Procter & Gamble stock if the firm’s equity cost of capital is 8%?
17. Maynard Steel plans to pay a dividend of $3 this year. The company has an expected earnings
growth rate of 4% per year and an equity cost of capital of 10%.
a. Assuming Maynard’s dividend payout rate and expected growth rate remains constant, and
Maynard does not issue or repurchase shares, estimate Maynard’s share price.
b. Suppose Maynard decides to pay a dividend of $1 this year and use the remaining $2
per share to repurchase shares. If Maynard’s total payout rate remains constant, estimate
Maynard’s share price.
c. If Maynard maintains the dividend and total payout rate given in part (b), at what rate are
Maynard’s dividends and earnings per share expected to grow?
21. Sora Industries has 60 million outstanding shares, $120 million in debt, $40 million in cash,
and the following projected free cash flow for the next four years::
Year 0 1 2 3 4
Earnings and FCF Forecast ($ millions)
1 Sales 433.0 468.0 516.0 547.0 574.
2 Growth versus prior year 8.1% 10.3% 6.0% 5.0%
3 Cost of Goods Sold (313.6) (345.7) (366.5) (384.8)
4 Gross Profit 154.4 170.3 180.5 189.5
5 Selling, General and Administrative (93.6) (103.2) (109.4) (114.9)
6 Depreciation (7.0) (7.5) (9.0) (9.5)
7 EBIT 53.8 59.6 62.1 65.2
8 Less: Income Tax at 40% (21.5) (23.8) (24.8) (26.1)
9 Plus: Depreciation 7.0 7.5 9.0 9.5
10 Less: Capital Expenditures (7.7) (10.0) (9.9) (10.4)
11 Less: Increase in NWC (6.3) (8.6) (5.6) (4.9)
12 Free Cash Flow 25.3 24.6 30.8 33.3
24. You notice that PepsiCo (PEP) has a stock price of $72.62 and EPS of $3.80. Its competitor,
the Coca-Cola Company (KO), has EPS of $1.89. Estimate the value of a share of Coca-Cola
stock using only this data.
We are committed to making our customer experience enjoyable and that we are keen on creating conditions where our customers feel secured and respected in their interactions with us.
With our qualified expert team who are available 24/7, we ensure that all our customer needs and concerns are met..
Our refund policy allows you to get your money back when you are eligible for a refund. In such a case, we guarantee that you will be paid back to your credit card. Another alternative we offer you is saving this money with us as a credit. Instead of processing the money back, keeping it with us would be an easier way to pay for next the orders you placeRead more
All orders you place on our website are written from scratch. Our expert team ensures that they exercise professionalism, the laid down guidelines and ethical considerations which only allows crediting or acknowledging any information borrowed from scholarly sources by citing. In cases where plagiarism is confirmed, then the costumier to a full refund or a free paper revision depending on the customer’s request..Read more
Quality is all our company is about and we make sure we hire the most qualified writers with outstanding academic qualifications in every field. To receive free revision the Company requires that the Customer provide the request within fourteen (14) days from the first completion date and within a period of thirty (30) days for dissertations.Read more
We understand that students are not allowed to seek help on their projects, papers and assignments from online writing services. We therefore strive to uphold the confidentiality that every student is entitled to. We will not share your personal information elsewhere. You are further guaranteed the full rights of originality and ownership for your paper once its finished.Read more
By placing an order with us, you agree to the service we provide. We will endear to do all that it takes to deliver a comprehensive paper as per your requirements. We also count on your cooperation to ensure that we deliver on this mandate.Read more