# 6 SIMPLE FINANCE PROBLEMS…

6 Simple Finance Problems

PLEASE REPLY IN HIGHLITE TO EACH QUESTION ON THIS SHEET IN SENTENCE FORM, FOLLOWING EACH PROBLEM AS: 2003 WORD .doc.

Please also SEPARATELY include the Excel Sheet showing how each problem was solved.

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1. Interpreting Bond Yields. Suppose you buy a 7 percent coupon, 20-year bond today when it’s first issued. If interest rates suddenly rise to 15 percent, what happens to the value of your bond? Why? 2. Bond Yields. The Timberlake-Jackson Wardrobe Co. has 10 percent coupon bonds on the market with nine years left to maturity. The bonds make annual payments. If the bond currently sells for \$1,145.70, what is its YTM? 3. Coupon Rates. Osborne Corporation has bonds on the market with 10.5 years to maturity, an YTM of 9.4 percent, and a current price of \$945. The bonds make semiannual payments. What must the coupon rate be on the bonds? 4. Stock Values. The next dividend payment by Mosby, Inc. will be \$2.45 per share. The dividends are anticipated to maintain a 5.5 percent growth rate, forever. If the stock currently sells for \$48.50 per share, what is the required return? 5. Stock Values. Ziggs Corporation will pay a \$3.85 per share dividend next year. The company pledges to increase its dividend by 4.75 percent per year, indefinitely. If you require a 12 percent return on your investment, how much will you pay for the company’s stock today? 6. Growth Rates. The stock price of Jenkins Co. is \$53. Investors require a 12 percent rate of return on similar stocks. If the company plans to pay a dividend of \$3.15 next year, what growth rate is expected for the company’s stock price? PLEASE REPLY IN HIGLITE TO EACH QUESTION ON THIS SHEET IN SENTENCE FORM, FOLLOWING EACH PROBLEM AS: 2003 WORD .doc. Please also SEPARATELY include the Excel Sheet showing how each problem was solved. AGAIN, PLEASE USE THIS SHEET TO ADD THE WRITTEN SOLUTIONS TO. d by 4.75 percent per year, indefinitely. If you require a 12 percent return on your investment, how much will you pay for the company’s stock today? 6. Growth Rates. The stock price of Jenkins Co. is \$53. Investors require a 12 percent rate of return on similar stocks. If the company…

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