Assume all bonds in these problems are semi-annual bonds with $1000 par value 1. Calculate the yield to maturity for the following corporate bond
Company(Ticker) Coupon Maturity Last Price Merck (MRK) 4.375 April 15, 2031 98.211
2. US Treasury Strips are zero-coupon securities. Suppose you wish to purchase a US Treasury Strip that matures exactly 10 years from now. If the yield on 10-year US Treasury securities is currently 2.40%, what is the correct price quote for this bond? (Use semi- annual compounding).
3. A corporate bond has a coupon rate of 5.5% and a yield to maturity of 4.905%. You buy the bond when it is quoted at 102.10 percent of par. It has been 75 days since the last coupon payment was made. How much must you pay, per bond?
4. RJ Wagner Insurance Co. preferred stock pays a cash dividend of $2.00 per share, per year. The current price of this stock is $51.95. What is the yield on this preferred? Suppose an individual is considering investing in this preferred stock, versus a AAA-rated municipal bond that has a yield to maturity of 2.195%. Which has the higher after tax yield if the investor pays 45% of her income in state and federal income taxes, and the municipal bond interest is tax exempt?
5. Heavy Metal Corporation is expected to generate Free Cash Flow of $75 million in the current year. The free cash flow is expected to grow at a 3% rate forever. Heavy Metal has 20 million shares outstanding, $400 million in debt and no excess cash. The tax rate is 40%, the required return on equity is 12%, and the WACC (cost of capital) is 9%. Compute the Enterprise Value of Heavy Metal and the value of the equity per share.
6a) IBM Corp. earned $12.25 in EPS last year. IBM has recently adopted a long-term target to pay out 50% of all future earnings as dividends. IBMâs dividends and earnings are expected to grow at a constant rate of 3% in the future. You require a 9% rate of return on stock investments of similar risk. What is your estimate of the market value of IBM stock?
6b). Based on the information provided what is the implied return on new investment (ROE*) for IBM.
7. Bunge Corp. earned $9.75 per share and paid $3.25 in dividends in the year just ended. Bungeâs (trailing) P/E ratio is 15.0. If Bunge dividends are expected to grow at a 5% rate forever, what is the expected rate of return on Bunge stock?
8. Monsanto, Corp paid dividends of $8.80 last year. You develop the following forecast for Monsantoâs future dividends: growth of 20% for 2 years, growth of 10% in years 3, 4 and 5, and growth of 5% per year, forever, after year 5. If investors required return on Monsanto stock is 15%, what is the estimated market value according to the multi-stage dividend discount model?