Module 04 Assignment - Valuation Calcultaions

Module04Assignment

Valuation Calcultaions

Stocks

Common Stock and Preferred Stock

PROBLEM 1

PREFERRED STOCK VALUATION

1) What is the value of the preferred stock when the dividend rate is 14% and the par value is $100? The discount rate is 12%.

Dividend rate     14.0%

Par value             $100.00

Discount rate     12.0%

Present Value

PROBLEM 2

PREFERRED STOCK VALUATION

2) Assume a preferred stock is selling for $33 per share in the market and pays a dividend of $3.60 annually.

Market price      $33.00

Dividend              $3.60

a) return

b) value

c) invest?

PROBLEM 3

COMMON STOCK VALUATION

3) A common stock paid $1.32 in dividends last year and is expected to grow indefinitely at an annual rate of 7%. What is the value of the stock if you require a return of 11%?

Growth rate       7.0%

Dividend              $1.32

Required rate    11.0%

Value

PROBLEM 4

COMMON STOCK VALUATION

4) A common stock paid $1.32 in dividends last year. Dividends are expected to grow at 8% annually indefinitely.

Dividends last year          $1.32

Dividend growth              8.0%

Current market price      $23.50

a) expected rate of return

b) required return           10.50%

value

c) invest?

Instructions 1) What is the value of the preferred stock when the dividend rate is 14% and the par value is $100? The discount rate is 12%.

2) Assume a preferred stock is selling for $33 per share in the market and pays a dividend of $3.60 annually.

a) What is the expected rate of return on the stock?

 b) If you require a 10% rate of return, what is the value of the stock to you? c) Would you invest in the stock? Explain.

3) A common stock paid $1.32 in dividends last year and is expected to grow indefinitely at an annual rate of 7%. What is the value of the stock if you require a return of 11%?

4) A common stock paid $1.32 in dividends last year. Dividends are expected to grow at 8% annually indefinitely.

a) If the stock currently sells at $23.50 per share, what is the stock’s expected return?

b) If you require a return of 10.5%, what is the value of the stock for you?

c) Should you make the investment? Explain.

 

Bonds

Bond Valuation and Yield

A bond has a par value of $1,000, pays $70 semiannually and has a maturity of 15 years.

1) If the bond earns 12% per year, what is the price of the bond?

Rate

Nper

PMT

FV

Type

PV

2) What is the yield to maturity for the bond?

Nper

PMT

PV

FV

Type

Rate

3) What would be the bond's price if the rate earned declined to 8% per year?

Rate

Nper

PMT

FV

Type

PV

4) If the maturity period is reduced to 10 years and the required rate of return is 8%, what would be the price of the bond?

Rate

Nper

PMT

FV

Type

PV

5) What is the yield to maturity for the bond when the maturity is 10 years and the required rate of return is 8%?

Nper                      annualized

PMT

PV

FV

Type

Rate

6) What generalizations about bond prices, interest rates, and maturity periods can be made based on the calculations made above?