1. Marks, Inc., expect a dividend of $5.20 per share in one year from now. The rate of return is 13% and the growth rate is 6.8%.
How much would you be willing to pay for Marks’ stock today?
If the current market price of Marks’ stock is $88.23, would you be willing to buy it? Why?
2) Micas has a bond outstanding. The coupon rate is 5.4% and the coupons are semiannually. The current value of the bond is $895. The time to maturity is 7 years.
Find the yield to maturity on this bond.
Find the effective rate of return on this bond.