Blog

Martinez Motors’ bonds have 6 years remaining to maturity.  Interest is paid annually; they have a $1,000 par value; the coupon interest rate is 7 percent; and the yield to maturity is 5 percent.  What is the bond’s current market price?

A share of common stock just paid a dividend of $1.00. If the expected long-run growth rate for this stock is 5.4%, and if investors’ required rate of return is 11.4%, what is the stock price?

What is the present value of a perpetuity that pays $2,400 per year if the discount rate is 9 percent?

A firm with a 10 percent cost of capital is considering a project for this year’s capital budget.  The project’s expected after-tax cash flows are as follows: Year: 0 1 2 3 4 Cash flow: -$12,000 $5,400 $5,600 $4,100 $5,000 Calculate the project’s discounted payback period.

What is the present value of a security that will pay $16,000 in 15 years if securities of equal risk pay 14 percent annually?

An investment will pay $600 at the end of each of the next 2 years, $500 at the end of Year 3, and $600 at the end of Year 4.  What is its present value if other investments of equal risk earn 9 percent annually?

What is the present value of an annuity due that pays $4,200 per year for 9 years, assuming the annual discount rate is 11 percent?

Brooks Books’ bonds have 6 years remaining to maturity.  Interest is paid annually; they have a $1,000 par value; the coupon interest rate is 9 percent; and the yield to maturity is 6.5 percent.  What is the bond’s current market price?

A firm with a 9 percent cost of capital is evaluating two projects for this year’s capital budget.  The projects’ expected after-tax cash flows are as follows: Year: 0 1 2 3 Project X: -$15,000 $6,900 $6,600 $7,200 Project Y: -$6,000 $2,000 $2,300 $1,900 If Projects X and Y are mutually exclusive, which one(s) should the firm adopt?

A firm’s bonds have a maturity of 23 years with a $1,000 face value, a 7 percent semiannual coupon, are callable in 4 years at $1,075, and currently sell at a price of $1,165.  What is their yield to call (YTC)?