(12-13) Aboard which matures in 7 years sells for $1,020.

The bond has a face value of $1,000 and a yield to

maturity of 10.58 percent. The bond pays coupons semiannually.
12. What is the bond's annual interest payment?
FV
PV
I/Y
N
PMT

1,000
1,020
5.29%
14
$109.92

13. What is the bonds current yield?

Current Yield

10.78%

(14-15) Lloyd Corporation's 14 percent coupon rate, semiannual payment, $ 1,000 par value bonds, which
mature in 30 years, are callable 5 years from now at a price of $1,050. The bonds sell at a price of
$1,353,54, and the yield curve is flat.

15. Assuming that interest rate in the economy are expected to remain at their current level, what is the best estimate of
FV
PV
N
PMT

1,000
1,354
60
70

Rate

10.20%

(16-17) Bullock Corp. recently purchased corporate bonds in the secondary market with a par value of $11
million, a coupon rate 12 percent ( with annual coupon payments), and eight years until maturity.

16. What is the annual coupon payment?

FV
Rate
Coupon Payment

$11 million
12%
$1.32

17. If Bullock intends to sell the bonds in two years and expect investors required xxx rate of return at that
time on similar investments to be 14 percent at that time. What is the expected market value of the bonds
in two years?
FV
PMT

11
1.32

N
Rate
Value

6
14%
$10.14

(18-19) Johnson Corporations expected at year-end on it's stock is $2.5 and dividends are expected to
grow at 2% per year forever. Investors require a 14 return on the stock

18. What is the dividend at the end of year six?

D1
G

$2.50
2%

D6

$2.76

19. What is its expected price 5 years from today?

D6
R
G
P5

$2.76
14%
2%
$23.00

(20-23) System Tech has been growing at a rate of 20 percent per year. The same growth will last for
another 2 years. Company just paid dividends of $1.60. The require rate of return is 10 percent. The
growth rate 6 percent.
20. What is CF2?
D0
G1
G2
R

$1.60
20%
6%
10%

D1
D2
D3

$1.92
$2.30
$2.44

CF2

$61.06

21. What is system Techs stock worth today?

D1
D2

Dividend PV factr Present value

$1.92
0.9091 1.745472
$2.30
0.8264 1.904026

P2

$61.06

Po

$54.11

0.8264 50.45668

22. What is the expected dividend yield on the stock during the first year?
D1
Po
Dividend Yield

$1.92
$54.11
3.55%

23. What is the capital gain yield on the stock during the first year?
Capital gain

12.84%

t is the best estimate of Lioyd's nominal interest rate on never