Valuation And Characteristics Of Bonds And Stock

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Valuation and Characteristics of Bonds and Stocks


Complete the following problems:

  • Problem 10-1: Bond Valuation 1
  • Problem 10-2: Bond Valuation 2
  • Problem 10-3: Bond Valuation 3
  • Problem 10-4: Preferred Stock Valuation
  • Problem 10-5: Common Stock Valuation 1
  • Problem 10-6: Common Stock Valuation 2
  • Problem 10-7: Cost of Trade Credit
  • Problem 10-8: Cost of Commercial Paper

You can access the problem details by excel

Complete the problems in an Excel spreadsheet. Be sure to show your work to receive credit

Module 10 CT PROBLEMS VALUATION AND CHARACTERISTICS OF BONDS AND STOCKS CT 10 - 1 BOND VALUATION Calculate the value of a bond that will mature in 20 years and has a SAR 1,000 face value. The annual coupon interest rate is 5 percent, and the investor's required rate of return is 7 percent. Interest is paid annually. DATA Years 20 Face value 1,000 Interest 5.0% Required rate of return 7.0% Present Value = CT 10 - 2 BOND VALUATION 2 Calculate the value of a bond that will mature in 12 years and has a SAR 2,500 face value. The interest rate is 10 percent and is paid semi-annually, and your required rate of return is 4 percent. (a) What is the value of the bond? (b) What is the value of the bond if interest is paid annually instead of semianually? DATA Coupon rate Times interest paid Years to Maturity Par Value Required rate of return A) Present value = B) If the interest is annual = CT 10 - 3 BOND VALUATION 3 Bisha Corporation issued a bond with a SAR1,200 par value that pays SAR 72 in annual interest. The bond matures in 15 years. Your required rate of return is 4 percent a. Calculate the value of the bond. b. Calculate the value of the bond if your required rate of return (1) increases to 9 percent or (2) decreases to 3 percent? c. Explain the implications of your answers in part b. as they relate to interest rate risk, premium bonds, and discount bonds. d. Assume that the bond matures in 7 years instead of 15 years. Recompute your answers in part b. e. Explain the implications of your answers in part d. as they relate to interest rate risk, premium bonds, and discount bonds. DATA Years 15 Interest 6.0% Bond 1,200 Required rate of return 4.0% A) Value of bond= B) Required rate of return The value of bond Required rate of return The value of bond C) D) Years Required rate of return The value of bond Required rate of return The value of bond Required rate of return The value of bond E) CT 10 - 4 PREFERRED STOCK VALUATION Preferred stock issued by SAE, Inc. is selling for SAR 89.00 per share in the market and pays a SAR 4.00 annual dividend. a. What is the expected rate of return on the stock? b. If an investor's required rate of retun is 7 percent, what is the value of the stock for that investor? c. Should the investor acquire the stock? Explain why or why not. DATA Market price 89.00 Dividend 4.00 A) Expected rate of return = B) Required rate of return= Value = C) CT 10 - 5 COMMON STOCK VALUATION Taif Corporation has a 12 percent return on equity and retains 55 percent of its earnings for reinvestment purposes. The company recently paid a dividend of SAR 4.00 and the stock is currently selling for SAR 42.00. a. What is the growth rate for Taif Corporation? b. What is the expected return for Taif stock? c. If you require a 15 percent return would you invest in Taif stock? Explain why or why not. DATA Return on equity Retention rate Dividend Market price A) Growth rate B) Next year's dividend Expected return C) Required rate of return Present value 12.0% 55.0% 4.00 42.00 CT 10 - 6 COMMON STOCK VALUATION Wadi Enterprises is selling for SAR 83.50 per share and paid a dividend of SAR 3.45 last year. The dividend is expected to grow at 4 percent indefinitely. Calculate the stock's dividend yield, growth rate, and expected rate of return. DATA Market price 83.50 Most recent annual dividend 3.45 Growth rate 4.0% Forthcoming dividend Dividend yield Growth rate Expected rate of return CT 10 - 7 COST OF TRADE CREDIT Calculate the effective cost of the following trade credit terms when payment is made on the net due date. A) 1/10, net 30: Percent Days Net Effective cost = B) 3/10, net 45: Percent Days Net Effective cost = C) 2/20 net 40: Percent Days Net Effective cost = D) 5/15, net 50: Percent Days Net Effective cost = CT 10 - 8 COST OF COMMERCIAL PAPER Afif Corporation plans to issue commercial paper for the first time in the firm's history. The company plans to issue SAR 600,000 in 90-day maturity notes. The paper will carry a 10 percent rate with discounted interest and will cost Afif 18,000 in fees (paid in advance) to issue. a. What is the effective cost of credit to Afif Corporation? b. What other factors should th ecompany consdier in analyzing whether to issue the commercial paper? DATA Amt issued Interest Cost of issuance Term 600,000 10.00% 18,000 90 A) Interest in SAR = APR = B)

Tutor Answer

fareeha27
School: UCLA

Hello, please find the attached solution. I have provided formulas for all the answers. Double click on cells to see the formulas. Please let me know if you have any question.Thanks

Module 10 CT PROBLEMS
VALUATION AND CHARACTERISTICS OF BONDS AND STOCKS
CT 10 - 1
BOND VALUATION
Calculate the value of a bond that will mature in 20 years and has a SAR 1,000 face value. The annual coupon
interest rate is 5 percent, and the investor's required rate of return is 7 percent. Interest is paid annually.
DATA
Years
Face value
Interest
Required rate of return
Present Value = FV [1/(1+R)ᴺ]
Pv annuity= PMT[1-(1+r)¯ᴺ/r ]
Value of Bond

20
1,000
5.0%
7.0%
258.42
529.70
788.12

NPER
FV
50 PMT
Rate

CT 10 - 2
BOND VALUATION 2
Calculate the value of a bond that will mature in 12 years and has a SAR 2,500 face value. The interest rate is 10
percent and is paid semi-annually, and your required rate of return is 4 percent. (a) What is the value of the bond?
(b) What is the value of the bond if interest is paid annually instead of semianually?
DATA
Coupon rate
10.0%
250
125 PMT
Times interest paid
2
Years to Maturity
12
24
NPER
Par Value
2,500
FV
Required rate of return
4.0%
0.02
Rate

A) Present value =
(3,918.54)
B) If the interest is annual =
(3,907.76)

CT 10 - 3
BOND VALUATION 3
Bisha Corporation issued a bond with a SAR1,200 par value that pays SAR 72 in annual interest. The...

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Anonymous
Top quality work from this guy! I'll be back!

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