risk to the firm’s shares. B) The price of a share of stock is equal to the present value of the expected future dividends it will pay. C) sa mple a stock‚ divided by its expected future sale price. Answer: D Explanation: A) B) C) D) The dividend yield is the annual dividend divided by the current price. Diff: 2 Topic: 9.1 Stock Prices‚ Returns‚ and the Investment Horizon S Which of the following statements is false? k i l 5) l : C 5 ) A) Future dividend payments and stock prices are not known
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cost of 10 percent‚ that equals the coupon rate on Ace’s last long-term first mortgage bond issue in 1993. And these bonds will mature in 17 years‚ and can be called in 3 years. So‚ Ace Repair’s current methods of estimating it’s before tax cost would equal to the coupon rate. That means the firm is currently paying a 2% risk premium and the 8% being paid by other A-rated corporate long-term bonds. B. It is not an appropriate measure of the firm’s cost of equity. Because the earnings yield is lower
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rate‚ so: Aftertax dividend = $1.65(1 – .15) Aftertax dividend = $1.40 The stock price should drop by the aftertax dividend amount‚ or: Ex-dividend price = $24.00 – 1.40 Ex-dividend price = $22.60 4. a. The shares outstanding increases by 10 percent‚ so: New shares outstanding = 30‚000(1.10) New shares outstanding = 33‚000 New shares issued = 3‚000 Since the par value of the new shares is $1‚ the capital surplus per share is $41. The additional capital surplus is therefore: Capital surplus on
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Telus: The Cost of Capital Business 3019 Synopsis Two managers attending an executive education course attempt to develop a cost of capital estimate for a leading telecommunications company‚ Telus The two managers are somewhat confused about the costs of various sources of capital‚ the calculation of the overall cost of capital and the appropriate use of the hurdle rate What Does Cost of Capital Mean? Cost of capital is what it will cost the firm‚ on the margin‚ today‚ to
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decided to accumulate this amount by investing a fixed amount at the end of each year in a safe scheme offering a rate of interest at 10 percent. What amount should you invest every year to achieve the target amount? 4. The market value of a Rs.1‚000 par value bond‚ carrying a coupon rate of 10 percent and maturing after 5 years‚ is Rs.850. What is the yield to maturity on this bond? 5. You are considering purchasing the equity stock of Empire Corporation. The current price per share
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government such as control of inflation‚ investment as well as employment. Interest rates refer to the price paid by deficit agents for borrowing funds from the surplus agents. A line that plots interest rate at a set point in time is the term structure or yield curve. Interest rates which may be short term or long term are linked to a government’s macro-economic policy and future expectations of such a policy .The UK government uses Treasury bill and bond prices to implement its monetary policy. Bills‚ which
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Besides‚ because zero-coupon bond is riskless‚ the bondholders are willing to hold it for long-term investment in order to diversity the portfolio. So it is important in the fixed income security market. If a bond trades at a discount‚ its yield to maturity will exceed its coupon rate. Zero coupon bonds always sells at a discount. The sensitivity of a bond’s price to changes in interest rates is measured by the bond’s duration. A bond with high durations，its price is highly sensitive to interest
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Revisiting the Financial Crisis: The Effect of Credit Shocks on Bond Yields Ram Yamarthy∗ New York University Mark J. Bertus Prize Winner From the financial crisis‚ it was apparent that traditional indicators such as real activity and inflation were insufficient to explain spikes in bond yields. I discover the effect of credit indicators on bond yields by estimating a Gaussian six-factor affine model of term structure. One of these factors is a credit variable that I construct using a principal component
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added to the bond’s principal at the end of every day (assume 365 days/year). A. Calculate the annual yield-to-maturity for each of the bonds. Annual yield-to-maturity is the discount rate that makes the present value of the bond’s promised payments equal to the bond price. Equivalently‚ yield-to-maturity is equal to the bond’s internal rate of return. Future Value of the Bond | | Annual Yield to Maturity | FV= | | PV * (1 + r)^t | | | | | | | | | | | | | | | | | |
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Examen de finanzas 4029 1. Financial markets a. transfer funds from those who have excess funds to those who need funds. a.i. surplus units a.i.1. Those participants who receive more money than they spend a.ii. deficit units a.ii.1. Those participants who spend more money than they receive 2. Securities a. are certificates that represent a claim on the issuer. a.i. Debt securities a.i.1. are certificates that represent debt ( borrowed funds) incurred by the issuer. a.ii. Equity securities
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