Homework

Homework Questions? Ask a Tutor for Answers ASAP

Ask an Expert,

Get an Answer ASAP!

Customer Question

A1. (Bond valuation) A $1,000...

A1. (Bond valuation) A $1,000 face value bond has a remaining maturity of 10 years and a required return of 9%. The bond’s coupon rate is 7.4%. What is the fair value of this bond?

A10. (Dividend discount model) Assume RHM is expected to pay a total cash dividend of $5.60 next year and its dividends are expected to grow at a rate of 6% per year forever. Assuming annual dividend payments, what is the current market value of a share of RHM stock if the required return on RHM common stock is 10%?

A12. (Required return for a preferred stock) James River $3.38 preferred is selling for $45.25. The preferred dividend is nongrowing. What is the required return on James River preferred stock?

A14. (Stock valuation) Suppose Toyota has nonmaturing (perpetual) preferred stock outstanding that pays a $1.00 quarterly dividend and has a required return of 12% APR (3% per quarter). What is the stock worth?

B16. (Interest-rate risk) Philadelphia Electric has many bonds trading on the New York Stock Exchange. Suppose PhilEl’s bonds have identical coupon rates of 9.125% but that one issue matures in 1 year, one in 7 years, and the third in 15 years. Assume that a coupon payment was made yesterday.

a. If the yield to maturity for all three bonds is 8%, what is the fair price of each bond?

b. Suppose that the yield to maturity for all of these bonds changed instantaneously to 7%. What is the fair price of each bond now?

c. Suppose that the yield to maturity for all of these bonds changed instantaneously again, this time to 9%. Now what is the fair price of each bond?

d. Based on the fair prices at the various yields to maturity, is interest-rate risk the same, higher, or lower for longer-versus shorter-maturity bonds?

B18. (Default risk) You buy a very risky bond that promises a 9.5% coupon and return of the $1,000 principal in 10 years. You pay only $500 for the bond.

a. You receive the coupon payments for three years and the bond defaults. After liquidating the firm, the bondholders receive a distribution of $150 per bond at the end of 3.5 years. What is the realized return on your investment?

b. The firm does far better than expected and bondholders receive all of the promised interest and principal payments. What is the realized return on your investment?

B20. (Constant growth model) Medtrans is a profitable firm that is not paying a dividend on its common stock. James Weber, an analyst for A. G. Edwards, believes that Medtrans will begin paying a $1.00 per share dividend in two years and that the dividend will increase 6% annually thereafter. Bret Kimes, one of James’ colleagues at the same firm, is less optimistic. Bret thinks that Medtrans will begin paying a dividend in four years, that the dividend will be $1.00, and that it will grow at 4% annually. James and Bret agree that the required return for Medtrans is 13%.

a. What value would James estimate for this firm?

b. What value would Bret assign to the Medtrans stock?

C1. (Beta and required return) The riskless return is currently 6%, and Chicago Gear has estimated the contingent returns given here.

a. Calculate the expected returns on the stock market and on Chicago Gear stock.

b. What is Chicago Gear’s beta?

c. What is Chicago Gear’s required return according to the CAPM?

Â Â Realized Return

State of the Market Probability that State Occurs Stock Market Chicago Gear

Stagnant 0.20 (10%) (15%)

Slow growth 0.35 10 15

Average growth 0.30 15 25

Rapid growth 0.15 25 35

A10. (Dividend discount model) Assume RHM is expected to pay a total cash dividend of $5.60 next year and its dividends are expected to grow at a rate of 6% per year forever. Assuming annual dividend payments, what is the current market value of a share of RHM stock if the required return on RHM common stock is 10%?

A12. (Required return for a preferred stock) James River $3.38 preferred is selling for $45.25. The preferred dividend is nongrowing. What is the required return on James River preferred stock?

A14. (Stock valuation) Suppose Toyota has nonmaturing (perpetual) preferred stock outstanding that pays a $1.00 quarterly dividend and has a required return of 12% APR (3% per quarter). What is the stock worth?

B16. (Interest-rate risk) Philadelphia Electric has many bonds trading on the New York Stock Exchange. Suppose PhilEl’s bonds have identical coupon rates of 9.125% but that one issue matures in 1 year, one in 7 years, and the third in 15 years. Assume that a coupon payment was made yesterday.

a. If the yield to maturity for all three bonds is 8%, what is the fair price of each bond?

b. Suppose that the yield to maturity for all of these bonds changed instantaneously to 7%. What is the fair price of each bond now?

c. Suppose that the yield to maturity for all of these bonds changed instantaneously again, this time to 9%. Now what is the fair price of each bond?

d. Based on the fair prices at the various yields to maturity, is interest-rate risk the same, higher, or lower for longer-versus shorter-maturity bonds?

B18. (Default risk) You buy a very risky bond that promises a 9.5% coupon and return of the $1,000 principal in 10 years. You pay only $500 for the bond.

a. You receive the coupon payments for three years and the bond defaults. After liquidating the firm, the bondholders receive a distribution of $150 per bond at the end of 3.5 years. What is the realized return on your investment?

b. The firm does far better than expected and bondholders receive all of the promised interest and principal payments. What is the realized return on your investment?

B20. (Constant growth model) Medtrans is a profitable firm that is not paying a dividend on its common stock. James Weber, an analyst for A. G. Edwards, believes that Medtrans will begin paying a $1.00 per share dividend in two years and that the dividend will increase 6% annually thereafter. Bret Kimes, one of James’ colleagues at the same firm, is less optimistic. Bret thinks that Medtrans will begin paying a dividend in four years, that the dividend will be $1.00, and that it will grow at 4% annually. James and Bret agree that the required return for Medtrans is 13%.

a. What value would James estimate for this firm?

b. What value would Bret assign to the Medtrans stock?

C1. (Beta and required return) The riskless return is currently 6%, and Chicago Gear has estimated the contingent returns given here.

a. Calculate the expected returns on the stock market and on Chicago Gear stock.

b. What is Chicago Gear’s beta?

c. What is Chicago Gear’s required return according to the CAPM?

Â Â Realized Return

State of the Market Probability that State Occurs Stock Market Chicago Gear

Stagnant 0.20 (10%) (15%)

Slow growth 0.35 10 15

Average growth 0.30 15 25

Rapid growth 0.15 25 35

Show More

Show Less

Was this answer helpful?

Describe your issueThe assistant will guide you

Chat 1:1 with a tutorLicensed Experts are available 24/7

100% satisfaction guaranteeGet all the answers you need

Related Homework Questions

A1. (Bond valuation) A $1,000 face value bond has a remaining

A1. (Bond valuation) A $1,000 face value bond has a remaining maturity of 10 years and a required return of 9%. The bonds coupon rate is 7.4%. What is the fair value of this bond? A10. (Dividend disco… read more

Hi all, I need to show my work for these for two reasons. First,

Hi all, I need to show my work for these for two reasons. First, the prof wants to see it and second, that will help me do the next set myself... A1. (Bond valuation) A $1,000 face value bond has a re… read more

I have several finance problems; A1.) A $1,000 face value bond

I have several finance problems; A1.) A $1,000 face value bond has a remaining maturity of 10 years and a required return of 9%. The bond's coupon rate is 7.4%. What is the fair value of this bond? A1… read more

B16. (Interest-rate risk) Philadelphia Electric has many bonds

B16. (Interest-rate risk) Philadelphia Electric has many bonds trading on the New York Stock Exchange. Suppose PhilEl's bonds have identical coupon rates of 9.125% but that one issue matures in 1 year… read more

B16. (Interest-rate risk) Philadelphia Electric has many bonds

B16. (Interest-rate risk) Philadelphia Electric has many bonds trading on the New York Stock Exchange. Suppose PhilEl's bonds have identical coupon rates of 9.125% but that one issue matures in 1 year… read more

A1. (Bond valuation) A $1,000 face value bond has a remaining

A1. (Bond valuation) A $1,000 face value bond has a remaining maturity of 10 years and a required return of 9%. The bond's coupon rate is 7.4%. What is the fair value of this bond A10. (Dividend disco… read more

A1. (Bond valuation) A $1,000 face value bond has a remaining

A1. (Bond valuation) A $1,000 face value bond has a remaining maturity of 10 years and a required return of 9%. The bond's coupon rate is 7.4%. What is the fair value of this bond? A10. (Dividend disc… read more

A1. (Bond valuation) A $1,000 face value bond has a remaining

A1. (Bond valuation) A $1,000 face value bond has a remaining maturity of 10 years and a required return of 9%. The bond's coupon rate is 7.4%. What is the fair value of this bond? A10. (Dividend disc… read more

Corporate Financial Management, Third Edition ISBN 9780132278720

Corporate Financial Management, Third Edition ISBN: 9780132278720 Author: Douglas R. Emery, John D. Finnerty, John D. Stowe copyright © 2007 Prentice Hall, Inc. A Pearson Education Company o Ch. 4: Pr… read more

5. (Interest-rate risk) Philadelphia Electric has many bonds

5. (Interest-rate risk) Philadelphia Electric has many bonds trading on the New York Stock Exchange. Suppose PhilEl's bonds have identical coupon rates of 9.125% but that one issue matures in 1 year, … read more

Ch. 5 & 7 Problems A1, A10, A12, A14, B16, B18, & B20 (pp.

A1: (Bond valuation) A $1,000 face value bond has a remaining maturity of 10 years and a required return of 9%. The bond's coupon rate is 7.4%. What is the fair value of this bond? A10: (Dividend disc… read more

A1. (Bond valuation) A $1,000 face value bond has a remaining

A1. (Bond valuation) A $1,000 face value bond has a remaining maturity of 10 years and a required return of 9%. The bond's coupon rate is 7.4%. What is the fair value of this bond? A10. (Dividend disc… read more

A1 (Bond valuation) A $1,000 face value bond has a remaining

A1 (Bond valuation) A $1,000 face value bond has a remaining maturity of 10 years and a required return of 9%. The bond's coupon rate is 7.4%. What is the fair value of this bond? A10. (Dividend disco… read more

h5.A1. (Bond valuation) A $1,000 face value bond ha

h5.A1. (Bond valuation) A $1,000 face value bond has a remaining maturity of 10 years and a required return of 9%. The bond's coupon rate is 7.4%. What is the fair value of this bond? Ch5.A10. (Divide… read more

Level A (Basic) A1. (Bond valuation) A $1,000 face value bond

Level A (Basic) A1. (Bond valuation) A $1,000 face value bond has a remaining maturity of 10 years and a required return of 9%. The bond's coupon rate is 7.4%. What is the fair value of this bond? A10… read more

Ch5.A1. (Bond valuation) A $1,000 face value bond has a remaining

Ch5.A1. (Bond valuation) A $1,000 face value bond has a remaining maturity of 10 years and a required return of 9%. The bond's coupon rate is 7.4%. What is the fair value of this bond? Ch5.A10. (Divid… read more

B16. (interest-rate Risk) Philadelphia Electric has many bonds

B16. (interest-rate Risk) Philadelphia Electric has many bonds trading on the New York Stock Exchange. Suppose PhilEl's bonds have identical coupon rate of 9.125 % but that one issue matures in 1 year… read more

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.

JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.

Web sites like justanswer.com/legal

...leave nothing to chance.

...leave nothing to chance.

Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.

Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.

I will tell you that...the things you have to go through to be an Expert are quite rigorous.

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

Los Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

Hesperia, CA

I couldn't be more satisfied! This is the site I will always come to when I need a second opinion.

Kernersville, NC

Just let me say that this encounter has been entirely professional and most helpful. I liked that I could ask additional questions and get answered in a very short turn around.

Woodstock, NY

Thank you so much for taking your time and knowledge to support my concerns. Not only did you answer my questions, you even took it a step further with replying with more pertinent information I needed to know.

Elkton, Maryland

He answered my question promptly and gave me accurate, detailed information. If all of your experts are half as good, you have a great thing going here.

Dallas, TX

< Previous | Next >

LogicPro

Engineer

5,894 satisfied customers

Expert in Java C++ C C# VB Javascript Design SQL HTML

Manal Elkhoshkhany

Tutor

4,556 satisfied customers

More than 5000 online tutoring sessions.

Linda_us

Finance, Accounts & Homework Tutor

7,291 satisfied customers

Post Graduate Diploma in Management (MBA)

Chris M.

M.S.W. Social Work

2,699 satisfied customers

Master's Degree, strong math and writing skills, experience in one-on-one tutoring (college English)

F. Naz

Chartered Accountant

2,194 satisfied customers

Experience with chartered accountancy

Bizhelp

CPA

1,887 satisfied customers

Bachelors Degree and CPA with Accounting work experience

Seanna

Tutor

1,781 satisfied customers

3,000+ satisfied customers, all topics, A+ work

< Previous | Next >

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.