Question

 14

 Assume that you are considering the purchase of a 10-year bond with a coupon rate of 10%. The bond has a par value of $1,000 and makes semiannual interest payments.

 The bond sels for $894.50, and can be called in 4 years for S1100. What is the yield to call of this bond?

•  15.54%

•  11.49%

•  12.85%

•  11.83%

•  13.77%

 15

 The expected return on some company's stock is 14%. The stock's dividend is expected to grow at a constant rate of 8%, and it currently sells for S50 a share. Which of the following statements is CORRECT

•  The stock's dividend yield is 8%.

•  The stock's dividend yield is 6%.

•  The stock price is expected to be $50 a share one year from now.

Answer 1

14

Calculator
Inputs:
PV	(894.50)
PMT	50.00
FV	1,100.00
N	8
Output:
I/Y = Period rate	7.77%
APR= I/Y *2	15.54%

Answer is:

15.54%

15

Dividend next year = 50 * (14%-8%) = 3

Dividend yield = 3/50 = 6%

Answer is:

The stocks dividend yield is 6%

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