Stock and Bond value and Preferred stock's required return
PLEASE SHOW WHAT EQUATIONS WOULD BE USED TO COMPLETE THE BELOW PROBLEMS.
A1. (Bond valuation) A 1,000 face value bond has remaining maturity of 10 years and a required return of 9%. The bond's coupon rate is 7.4%. What is the fair value of this bond?
A10. (Dividend discount model) Assume RHM is expected to pay a total cash dividend of $5.60 next year and its dividends are expected to grow at a rate of 6% per year forever. Assuming annual dividends payments, what is the current market value of a share of RHM stock if the required return on RHM common stock is 10%.
A12. (Required return for a preferred stock) James River $3.38 preferred is selling for $45.25. The preferred dividend is nongrowing. What is the required return on James River preferred stock?© SolutionLibrary Inc. solutionlibary.com 9836dcf9d7 https://solutionlibrary.com/business/finance/stock-and-bond-value-and-preferred-stocks-required-return-7etk
...he bond has many years to maturity. Therefore, we use a financial calculator to solve the problem. Here is the setup:
Given face value = $1,000, Years to maturity = 10 years, Annual coupon rate = 7.4%, required return = 9%
You will need to calculate the interest payment which is:
INT = coupon rate X par value = 0.074 ($1,000) = 74. Thus, PMT is 74.
Using TI BA Plus II financial calculator, enter the following:
N = 10, PMT = 74, FV = 1000, I/Y = ...