Module04AssignmentTemplate.xlsx
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? |
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