Valuation And Characteristics Of Bonds And Stock Please if your major is not accounting or financial do not accept ” Thanks ” Valuation and Characteristic

Valuation And Characteristics Of Bonds And Stock Please if your major is not accounting or financial do not accept ” Thanks ”

Valuation and Characteristics of Bonds and Stocks

Complete the following problems:

Problem 10-1: Bond Valuation 1
Problem 10-2: Bond Valuation 2
Problem 10-3: Bond Valuation 3
Problem 10-4: Preferred Stock Valuation
Problem 10-5: Common Stock Valuation 1
Problem 10-6: Common Stock Valuation 2
Problem 10-7: Cost of Trade Credit
Problem 10-8: Cost of Commercial Paper

You can access the problem details by excel

Complete the problems in an Excel spreadsheet. Be sure to show your work to receive credit Module 10 CT PROBLEMS
VALUATION AND CHARACTERISTICS OF BONDS AND STOCKS
CT 10 – 1
BOND VALUATION
Calculate the value of a bond that will mature in 20 years and has a SAR 1,000 face value. The annual
coupon interest rate is 5 percent, and the investor’s required rate of return is 7 percent. Interest is paid
annually.
DATA
Years
20
Face value
1,000
Interest
5.0%
Required rate of return
7.0%
Present Value =
CT 10 – 2
BOND VALUATION 2
Calculate the value of a bond that will mature in 12 years and has a SAR 2,500 face value. The interest rate is
10 percent and is paid semi-annually, and your required rate of return is 4 percent. (a) What is the value of the
bond? (b) What is the value of the bond if interest is paid annually instead of semianually?
DATA
Coupon rate
Times interest paid
Years to Maturity
Par Value
Required rate of return
A) Present value =
B) If the interest is annual =
CT 10 – 3
BOND VALUATION 3
Bisha Corporation issued a bond with a SAR1,200 par value that pays SAR 72 in annual interest. The bond
matures in 15 years. Your required rate of return is 4 percent
a. Calculate the value of the bond.
b. Calculate the value of the bond if your required rate of return (1) increases to 9 percent or (2) decreases to 3
percent?
c. Explain the implications of your answers in part b. as they relate to interest rate risk, premium bonds, and
discount bonds.
d. Assume that the bond matures in 7 years instead of 15 years. Recompute your answers in part b.
e. Explain the implications of your answers in part d. as they relate to interest rate risk, premium bonds, and
discount bonds.
DATA
Years
15
Interest
6.0%
Bond
1,200
Required rate of return
4.0%
A) Value of bond=
B)
Required rate of return
The value of bond
Required rate of return
The value of bond
C)
D)
Years
Required rate of return
The value of bond
Required rate of return
The value of bond
Required rate of return
The value of bond
E)
CT 10 – 4
PREFERRED STOCK VALUATION
Preferred stock issued by SAE, Inc. is selling for SAR 89.00 per share in the market and pays a SAR 4.00
annual dividend.
a. What is the expected rate of return on the stock?
b. If an investor’s required rate of retun is 7 percent, what is the value of the stock for that investor?
c. Should the investor acquire the stock? Explain why or why not.
DATA
Market price
89.00
Dividend
4.00
A)
Expected rate of return =
B)
Required rate of return=
Value =
C)
CT 10 – 5
COMMON STOCK VALUATION
Taif Corporation has a 12 percent return on equity and retains 55 percent of its earnings for reinvestment
purposes. The company recently paid a dividend of SAR 4.00 and the stock is currently selling for SAR 42.00.
a. What is the growth rate for Taif Corporation?
b. What is the expected return for Taif stock?
c. If you require a 15 percent return would you invest in Taif stock? Explain why or why not.
DATA
Return on equity
Retention rate
Dividend
Market price
A)
Growth rate
B)
Next year’s dividend
Expected return
C)
Required rate of return
Present value
12.0%
55.0%
4.00
42.00
CT 10 – 6
COMMON STOCK VALUATION
Wadi Enterprises is selling for SAR 83.50 per share and paid a dividend of SAR 3.45 last year. The dividend
is expected to grow at 4 percent indefinitely. Calculate the stock’s dividend yield, growth rate, and expected
rate of return.
DATA
Market price
83.50
Most recent annual dividend
3.45
Growth rate
4.0%
Forthcoming dividend
Dividend yield
Growth rate
Expected rate of return
CT 10 – 7
COST OF TRADE CREDIT
Calculate the effective cost of the following trade credit terms when payment is made on the net due date.
A)
1/10, net 30:
Percent
Days
Net
Effective cost =
B)
3/10, net 45:
Percent
Days
Net
Effective cost =
C)
2/20 net 40:
Percent
Days
Net
Effective cost =
D)
5/15, net 50:
Percent
Days
Net
Effective cost =
CT 10 – 8
COST OF COMMERCIAL PAPER
Afif Corporation plans to issue commercial paper for the first time in the firm’s history. The company plans to
issue SAR 600,000 in 90-day maturity notes. The paper will carry a 10 percent rate with discounted interest
and will cost Afif 18,000 in fees (paid in advance) to issue.
a. What is the effective cost of credit to Afif Corporation?
b. What other factors should th ecompany consdier in analyzing whether to issue the commercial paper?
DATA
Amt issued
Interest
Cost of issuance
Term
600,000
10.00%
18,000
90
A)
Interest in SAR =
APR =
B)

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