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Treasury strips

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Question



The following table shows the prices of a sample of Treasury strips. Each strip makes a

single payment at maturity. Calculate the interest rate offered by each of these strips.

Years to MaturityPrice, %
1   96.952%
293.451
389.644
485.580
a.What is the 1-year interest rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
  Interest rate %  
b.What is the 4-year rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
  Interest rate %  
c.Is the yield curve upward-sloping, downward-sloping, or flat?
  
 Upward-slopingDownward-slopingFlat
d.Is this the usual shape of the yield curve?
  
 YesNo
 
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y As She Goes Inc. will pay a year-end dividend of $3.20

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Question

y As She Goes Inc. will pay a year-end dividend of $3.20 per share. Investors expect the dividend to grow at a

rate of 6% indefinitely.

a.If the stock currently sells for $32 per share, what is the expected rate of return on the stock? (Do not round intermediate calculations. Enter your answer as a whole percent.)
  Expected rate of return %  
b.If the expected rate of return on the stock is 18.5%, what is the stock price? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
  Stock price
 
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Arts and Crafts, Inc., will pay a dividend of $4 per share in 1 year

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Question

Arts and Crafts, Inc., will pay a dividend of $4 per share in 1 year. It sells at $80 a share, and firms in the

same industry provide an expected rate of return of 15%. What must be the expected growth rate of the company’s dividends? (Do not round intermediate calculations. Enter your answer as a whole percent.)

  Expected growth rate% 
 
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investment opportunities

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Question

Chapter 7 #5Stormy Weather has no attractive investment opportunities. Its return on equity equals the

discount rate, which is 20%. Its expected earnings this year are $2 per share. Find the stock price, P/E ratio, and growth rate of dividends for plowback ratios of: (Leave no cells blank – be certain to enter “0” wherever required. Do not round intermediate calculations. Enter the growth rate as a percent rounded to 1 decimal place.)

 Plowback Ratios     Stock Price       P/E Ratio  Growth Rate of
 Dividends
  a.Zero           $          %  
  b..20                    %  
  c..60                    %  

The cells that are empty were incorrect.  This is the second time posting this question

 
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