## Module04AssignmentTemplate.xlsx

## Stocks

Common Stock and Preferred Stock | |||

PROBLEM 1 | |||

PREFERRED STOCK VALUATION | |||

1) What is the value of the preferred stock when the dividend rate is 14% and the par value is $100? The discount rate is 12%. | |||

Dividend rate | 14.0% | ||

Par value | $100.00 | ||

Discount rate | 12.0% | ||

Present Value | |||

PROBLEM 2 | |||

PREFERRED STOCK VALUATION | |||

2) Assume a preferred stock is selling for $33 per share in the market and pays a dividend of $3.60 annually. | |||

Market price | $33.00 | ||

Dividend | $3.60 | ||

a) return | |||

b) value | |||

c) invest? | |||

PROBLEM 3 | |||

COMMON STOCK VALUATION | |||

3) A common stock paid $1.32 in dividends last year and is expected to grow indefinitely at an annual rate of 7%. What is the value of the stock if you require a return of 11%? | |||

Growth rate | 7.0% | ||

Dividend | $1.32 | ||

Required rate | 11.0% | ||

Value | |||

PROBLEM 4 | |||

COMMON STOCK VALUATION | |||

4) A common stock paid $1.32 in dividends last year. Dividends are expected to grow at 8% annually indefinitely. | |||

Dividends last year | $1.32 | ||

Dividend growth | 8.0% | ||

Current market price | $23.50 | ||

a) expected rate of return | |||

b) required return | 10.50% | ||

value | |||

c) invest? | |||

Instructions

1) What is the value of the preferred stock when the dividend rate is 14% and the par value is $100? The discount rate is 12%.

2) Assume a preferred stock is selling for $33 per share in the market and pays a dividend of $3.60 annually.

a) What is the expected rate of return on the stock?

b) If you require a 10% rate of return, what is the value of the stock to you?

c) Would you invest in the stock? Explain.

3) A common stock paid $1.32 in dividends last year and is expected to grow indefinitely at an annual rate of 7%. What is the value of the stock if you require a return of 11%?

4) A common stock paid $1.32 in dividends last year. Dividends are expected to grow at 8% annually indefinitely.

a) If the stock currently sells at $23.50 per share, what is the stock’s expected return?

b) If you require a return of 10.5%, what is the value of the stock for you?

c) Should you make the investment? Explain.

## Bonds

Bond Valuation and Yield | ||

A bond has a par value of $1,000, pays $70 semiannually and has a maturity of 15 years. | ||

1) If the bond earns 12% per year, what is the price of the bond? | ||

Rate | ||

Nper | ||

PMT | ||

FV | ||

Type | ||

PV | ||

2) What is the yield to maturity for the bond? | ||

Nper | ||

PMT | ||

PV | ||

FV | ||

Type | ||

Rate | ||

3) What would be the bond’s price if the rate earned declined to 8% per year? | ||

Rate | ||

Nper | ||

PMT | ||

FV | ||

Type | ||

PV | ||

4) If the maturity period is reduced to 10 years and the required rate of return is 8%, what would be the price of the bond? | ||

Rate | ||

Nper | ||

PMT | ||

FV | ||

Type | ||

PV | ||

5) What is the yield to maturity for the bond when the maturity is 10 years and the required rate of return is 8%? | ||

Nper | annualized | |

PMT | ||

PV | ||

FV | ||

Type | ||

Rate | ||

6) What generalizations about bond prices, interest rates, and maturity periods can be made based on the calculations made above? | ||