Question 1. Quick Silver Ltd is looking for financial investment in the securities market. Two investment options are available in different securities: Bonds and ordinary shares.
- Treasury bond: the bond is paying 10% coupon rate. Interest is paid semiannually. The bonds have a face value of $1,000 and will mature 25 years from now.
- Commonwealth Bank ordinary share: the share just paid a dividend of $6.50 per share. The Company Management agreed on steady growth of 5% in dividends and earnings over the foreseeable future. The required rate of return for shares of this type is 18%.
- Compute the current value of the Treasury Bond if the YTM of the bond is 7% annually;
- Calculate the current value of Commonwealth Bank ordinary shares.
Question 2: Smart Learning Company issued preferred shares and plans to pay a dividend rate of 15%. The share has the face value of $100. The required rate of return for shares of this type is 12%.
- Calculate the current price of this preferred share?
- What is the current price of this preferred share if the required rate of return is 16% now?
Question 3: Blooming Ltd. currently has the following capital structure:
Debt: $2,500,000 par value of outstanding un-callable bond that pays annually 12% coupon rate with a yield to maturity of 10%. The bond has face value of $1,000 and will mature in 25 years.
Ordinary shares: 65,000 outstanding ordinary shares. The firm plans to pay a $7.50 dividend per share in the next financial year. The firm is maintaining 3% annual growth rate in dividend, which is expected to continue indefinitely.
Preferred shares: 40 000 outstanding preferred shares with face value of $100, paying fixed dividend rate of 14%.
Required: Complete the following tasks:
- Calculate the current price of the corporate bond?
- Calculate the current price of the ordinary share if the average return of the shares in the same industry is 9%?
- Calculate the current value of the preferred share if the average return of the shares in the same industry is 12%
Click on Buy Solution and make payment. All prices shown above are in USD. Payment supported in all currencies. Price shown above includes the solution of all questions mentioned on this page. Please note that our prices are fixed (do not bargain).
After making payment, solution is sent within 2 to 5 minutes on your Email ID. But it may take up to 1 hour in case of high load on server. Solution is available in Word or Excel format unless otherwise specified.
If your question is slightly different from the above question, please contact us at firstname.lastname@example.org with your version of question.