Problem: Stocks, Bonds, HPR & TVM
1. The future value of an ordinary annuity of $ 3,500 each year for 25 years, deposited at 9% compounded annually is what?
2. You decide to borrow $ 10,000 for business expansion. This loan will be for 10 years at 12% interest. How much will your annual note be?
3. What is the required rate of return on a stock with a beta of 1.25, if the market return (Opportunity cost) is 10% and the risk free rate is 4%?
4. What is the value of a bond with a coupon with a coupon rate of 10% that will mature in three years? The yield to maturity (the discount rate) is 12%?
5. What is the price of a share of preferred stock that pays $ 2.00 dividends and has a required return of 12%?
6. Magnificent Manes Wig Salons, Inc. has an expected dividend of $3.20 per share, dividend growth is listed below and a return of 15% is required. What is the value of a share of magnificent stock?
|
Year
|
Dividend
|
|
2014
|
$2.29
|
|
2013
|
$2.49
|
|
2012
|
$2.70
|
|
2011
|
$2.85
|
|
2010
|
$2.94
|
7. A bond has a coupon rate of 11% and pays interest semi-annually. It has a yield to maturity of 14% and 10 years left until maturity. What will the bond sell for today?
8. How much should Boy Howdy Stock sell for if the market return for similar typed of securities is 12% and dividends are as follows:
|
Years
|
Dividends
|
|
2014
|
$2.25
|
|
2013
|
$2.19
|
|
2012
|
$2.15
|
|
2011
|
$2.11
|
|
2010
|
$2.09
|
9. What would be the price of a share of Group Hug Psychology Clinics Inc. stock if the growth rate in dividends is 8%, the required rate of return is 18% and the company expects to pay $2.00 for the next dividend?
10. What is the return on equipment that cost $5,000 when new, can be resold for $2,500 and produced additional income of $500 per year for 7 years?
11. What would be the selling price of a bond that has a coupon rate of 5.5%, it has 15 years to maturity and has a yield of 9%?
12. What is the selling price of preferred stock if the dividends are $15 and the return on the stock is 18%?
13. What is the return on a preferred stock or perpetual bond that has a dividend of $ 120 and sells for $1500?
Stock Valuation Problems:
1. High Brow Cow Farms, producer of the finest dairy products, is considering selling stock at a price of $52 per share. If the dividends for the past five years are listed below, what return should High Brow investors expect?
|
Years
|
Dividends
|
|
2010
|
$1.59
|
|
2011
|
$1.62
|
|
2012
|
$1.75
|
|
2013
|
$1.81
|
|
2014
|
$1.87
|
2. What is the required rate of return for stock that has a beta of 1.2, a market risk premium of 4% and a risk-free rate of 1.75%?
3. What is the required rate of return for stock that has a dividend yield of 1.9%, a price of $12 and a growth rate of 5%?
4. What is the required rate of return for a stock that dividend yield of 3.1%, a price of %28 and a growth rate of 4%?
5. What is the required rate of return for a stock that has a beta of .5, a risk free rate of 1.5% and a return in the market of 8%?
6. Comfy Coach Travel Agencies has a price of $72 per share and the dividends have been: 2010 - $1.25, 2011 - $1.28, 2012 - $1.35, 2013 - $1.2, 2014 - $1.51. What is the company's required rate of return?
7. Chill Pill Pharmaceuticals is trying to determine a fair price for its new issue of stock. Its past dividends are 2010 - $ 2.15, 2011 - $2.18, 2012 - $2.25, 2013 - $2.36, 2014 - $2.42. The required rate of return for the stock is 12% and the firm expects to pay a dividend of $2.58 per share.
8. What is a price for preferred stock from Feelin' Groovy Movie Corporation if the required rate of return is 14% and its pays a dividend per share of $257?
9. What is the required rate of return for Terrific Pacific Underwater Drivers if the stock has a beta of 2.8, a risk free rate of 2.4% and a market risk premium of 7%?
10. What is the holding period return for equipment that was purchased six years ago, has generated %8500 in total revenue, cost $35,000 when new and can be resold for %32,000
11. The law firm of Nab-bem and Robb is considering selling stock. It has past dividends of: 2011 - 41.15, 2012 - $1.27, 2013 - $1.38, 2014 - $1.47. What should the stock sell for if the required rate of return is 12%?
12. Drs. Hack & Whack Plastic Surgeons is considering selling preferred stock. What would be the required rate of return if the stock sells for $2,500 and has an annual dividend of $185?