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dividend

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Question

Arts and Crafts, Inc. will pay a dividend of $2 per share in 1 year. It sells at $40 a share, and firms in the

same industry provide an expected rate of return of 13%. What must be the expected growth rate of the company’s dividends? (Do not round intermediate calculations. Enter your answer as a whole percent.)

No-Growth Industries pays out all of its earnings as dividends. It will pay its next $2 per share dividend in a year. The discount rate is 10%.

a. What is the price-earnings ratio of the company? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. What would the P/E ratio be if the discount rate were 4%? (Round your answer to 2 decimal places.)

 
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dividend

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Question

Steady As She Goes Inc. will pay a year-end dividend of $2.80 per share. Investors expect the dividend to grow at

a rate of 4% indefinitely.

a. If the stock currently sells for $28.00 per share, what is the expected rate of return on the stock? (Do not round intermediate calculations. Enter your answer as a whole percent.)

b. If the expected rate of return on the stock is 16.50%, what is the stock price? (Do not round intermediate calculations.)

Stormy Weather has no attractive investment opportunities. Its return on equity equals the discount rate, which is 5%. Its expected earnings this year are $2 per share. Complete the following table. (Do not round intermediate calculations. Enter the growth rate as a whole percent.)

 
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dividend

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Question

Favored stock will pay a dividend this year of $3.50 per share. Its dividend

yield is 21%. At what price is the stock selling? (Round your answer to 2 decimal places.)

Preferred Products has issued preferred stock with an annual dividend of $8.16 that will be paid in perpetuity.

a. If the discount rate is 12.00%, at what price should the preferred sell? (Round your answer to 2 decimal places.)

b. At what price should the stock sell 1 year from now? (Round your answer to 2 decimal places.)

c. What is the dividend yield, the capital gains yield, and the expected rate of return of the stock? (Enter your answers as a whole percent.)

 
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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.

Years to MaturityPrice, (% of face value)198.752%295.251 391.444 487.380  

a. What is the 1-year interest rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

b. What is the 2-year interest rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

c. What is the 3-year interest rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

d. What is the 4-year interest rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

e. Is the yield curve upward-sloping, downward-sloping, or flat?

  • Upward-sloping
  • Downward-sloping
  • Flat

f. Is this the usual shape of the yield curve?

  • Yes
  • No

a. Several years ago, Castles in the Sand Inc. issued bonds at face value of $1,000 at a yield to maturity of 5.6%. Now, with 8 years left until the maturity of the bonds, the company has run into hard times and the yield to maturity on the bonds has increased to 13%. What is the price of the bond now? (Assume semiannual coupon payments.) (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. Suppose that investors believe that Castles can make good on the promised coupon payments but that the company will go bankrupt when the bond matures and the principal comes due. The expectation is that investors will receive only 82% of face value at maturity. If they buy the bond today, what yield to maturity do they expect to receive? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 
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