Common Stock and Preferred Stock

Common Stock and Preferred Stock 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 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 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. 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 r 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%. W Growth rate 7.0% Dividend $1.32 Required rate Value 11.0% 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? s $100? The discount rate is 12%. $3.60 annually. n annual rate of 7%. What is the value of the stock if you require a return of 11%? nnually indefinitely. 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 PMT PV FV Type Rate annualized 6) What generalizations about bond prices, interest rates, and maturity periods can be made based on the calculations made