Student's Name: Date:

Solution method uses cell references, cell formulas, and other function/ formula to answer the problem. Workings will not
only the final answer in the yellow boxes provided.

Problem:

Part (a)
Holder Enterprises wants to issue fifty 30-year, $1,000 par value, zero coupon bonds. If each bond is priced to yield 6 percent
how much in total will Holder Enterprises receive (ignoring issuance costs) when all fifty of the bonds are first sold?

Workings:
Term 30 years
Par Value (FV) 1000
Coupon rate 0
Coupon payment 0
Yield rate 6%

Bond price $174.11

Number of bonds 50

Amount received: $8,705.51 3

Part (b)
Holder Enterprises still wants to issue fifty 30-year bonds with $1,000 par value, but with a 9 percent semiannual coupon rate
priced to yield 12 percent semiannually, how much in total will Holder Enterprises now receive (ignoring issuance costs) whe
sold?

Workings:
Frequency 2
Term 30 years
Term (semiannually) 60 periods
Par Value (FV) $ 1,000
Coupon rate (annual) 9%
Coupon rate (semi-annual) 0.045
Coupon payment $ 45.00
Yield rate (annual) 12%
Yield rate (semi- annual) 0.06
Bond price $757.58
Number of bonds 50

Amount received: $37,878.93 4

Part (c )

What is the percentage change in amount financed from part (a) to part (b)?

Workings:
Beginning $8,705.51
Ending $37,878.93

335%

Amount received: 335% 2

Problem 2
Part (a)
Last year a firm issued 25-year, 7 percent annual coupon bonds at a par value of $1,000 with a yield to maturity of 5 percent.
year later the going yield rate drops to 4 percent. What is the new price of the bond?

Workings:
Term 24
Par Value (FV) 1000
Coupon rate 7%
Coupon payment 70
Yield rate 4%

Bond price $1,457.41

Bond Price $1,457.41 3

Part (b)
Suppose instead that one year after issue the going interest rate increases to 6 percent (rather than 4%).
What is the bond price?

Workings:
Term 24
Par Value (FV) 1000
Coupon rate 7%
Coupon payment $ 70.00
Yield rate 6%

Bond price $1,125.50

Bond Price $1,125.50 3

Part (c )
What was the original price of the bond on the date of issue?

Workings:
Term 25
Par Value (FV) 1000
Coupon rate 7%
Coupon payment 70
Yield rate 5%

Bond price $1,281.88

Bond Price $1,281.88 3

Part (d )
How many bonds would have be sold in each scenario (a), (b) and (c) if the firm wanted to raise $150,000? State answer to t
number.

Workings:

Bond price (a) $1,457.41

Bond price (b) $1,125.50
Bond price (c) $1,281.88

Amount to be raised $ 150,000

Part (a) Number of bonds 103 1

Part (b) Number of bonds 133 1
Part (c ) Number of bonds 117 1

Problem3

Shawna Carter wants to invest her recent bonus in a seven-year bond that pays a coupon of 9.5 percent semiannually. The bo
are selling at $958.45 today. If she buys this bond and holds it to maturity, what would be her yield?

Workings:
Frequency 2
Term 7 years
Term (semiannually) 14 periods
Par Value (FV) $ 1,000
Coupon rate (annual) 9.50%
Coupon rate (semi-annual) 0.0475
Coupon payment $ 47.50
Bond price $ 958.45

Yield rate (annual) 5.17%

Yield rate (semi- annual) 10.35%

Yield rate (2 decimal places) 10.35% 4

rmula to answer the problem. Workings will not be graded,
w boxes provided.

n bonds. If each bond is priced to yield 6 percent,

when all fifty of the bonds are first sold?

marks

alue, but with a 9 percent semiannual coupon rate and each bond is
rprises now receive (ignoring issuance costs) when the fifty bonds are
 marks

)?

marks

e of $1,000 with a yield to maturity of 5 percent. Suppose that now one

he bond?
 marks

o 6 percent (rather than 4%).

marks

marks
 firm wanted to raise $150,000? State answer to the nearest whole

mark
mark
mark

ays a coupon of 9.5 percent semiannually. The bonds

what would be her yield?

marks
Problem 1

The Bradshaw Company's most recent dividend was $5.80. The historical dividend payment by the company shows a constan
year. What is the maximum you would be willing to pay for a share of its common stock if your required return is 10 percent?

Workings:
Recent dividend $ 5.80
Growth rate 7%
Required return 10%

Dividend 1 $ 6.21

Price $206.87

Price of common stock $206.87 5

Problem 2
Julie's X-Ray Company paid $4.00 per share in common stock dividends last year. The company's policy is to allow its dividend
and then the rate of growth changes to 7 percent per year from year five and on. What is the value of the stock if the require

Workings:

Growth rate 1 5% first 4 years

Growth rate 2 7% from year 5 onwards
Dividend last paid $4.00
Required Return 11%

Years Dividend Name Dividend Value

1 D1 $4.20
2 D2 $4.41
3 D3 $4.63
4 D4 $4.86
5 D5 $5.20

P4

Stock Price
Stock Price $99.63 8

Problem 3
The Oxford heating Company has been very successful in the past four years. Over these years, it paid common stock dividen
in the second year, $3.89 in the third year, and its most recent dividend was $3.99. The company wishes to continue this
dividend growth indefinitely. What is the value of the company's stock if the required rate of return is 9 percent?

Workings:
Past four years of dividends
D1 $ 3.25
D2 $ 3.75
D3 $ 3.89
D4 $ 3.99
Years of growth 3 OR
Required Return 9%

Constant growth rate 7.0771%

Stock price $ 222.18

Value of stock (2 decimal places) $ 222.18 4

Problem 4
Zoom, Inc., is a fast-growth company that is expected to grow at a rate of 25 percent for the next four years. It is then expect
percent. Zoom’s first dividend, of $4.50, will be paid in year 3. If the required rate of return is 18 percent, what is the current
expected to grow at the same rate as the company?

Workings:
Present Value at
Time Dividend time 0
1 $ -
2 $ -
3 $ 4.50 $ 2.74
4 $ 5.63 $ 2.90
5 $ 6.08
Stock price at time 4 $ 60.75 $ 31.33

Stock Price at time 0 $ 36.97

Value of stock (2 decimal places) $ 36.97 8

payment by the company shows a constant growth rate of 7 percent per
stock if your required return is 10 percent?

marks

he company's policy is to allow its dividend to grow at 5 percent for 4 years

What is the value of the stock if the required rate of return is 11 percent?

ear 5 onwards

PV
$3.78
$3.58
$3.39
$3.20

$85.67

$99.63
 marks

these years, it paid common stock dividend of $3.25 in the first year, $3.75
. The company wishes to continue this
red rate of return is 9 percent?

Past four years of dividends

D1 $ 3.25
D2 $ 3.75
D3 $ 3.89
D4 $ 3.99
Years of growth 4
Required Return 9%

Constant growth rate 7.0771%

Stock price $ 222.18

marks

ent for the next four years. It is then expected to grow at a constant rate of 8
of return is 18 percent, what is the current value of the stock if dividends are

growth rate 1 25%

growth rate 2 8%

Required rate of return 18%

marks

Total Score 25
 Marks Marks
Awarded Available
Bonds-Problem 1 40 40
Stocks-Problem 1 25 25
Total 65 65
Percentage 100%
Points to grade 5