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Author Question: ND Electric Company issued 1,000 bonds that have an annual coupon rate of 6.5. The present market ... (Read 159 times)

Tazate

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on: Jul 10, 2018
ND Electric Company issued 1,000 bonds that have an annual coupon rate of 6.5. The present
  market value of the bonds is 1,225. If the bonds have 17 years remaining until maturity, what is
  the current yield on ND Electric Company bonds?
 
  A) 6.5 B) 13.2 C) 7.2 D) 5.3

Question 2

The price of DDS Corporation stock is expected to be 45 in 5 years. Dividends are anticipated to increase at an
  annual rate of 10 percent from the most recent dividend of 1.00.
 
  If your required rate of return is 15 percent,
  how much are you willing to pay for DDS stock?
Foundations of Finance ¦ Keown, Petty, Martin ¦ 9th Edition
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TheNamesImani

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Reply #1 on: Jul 10, 2018
Answer to Question 1

D

Answer to Question 2

The expected cash flows are the future dividends plus the future selling price,
Year D PV  15
1 1.10 .96
2 1.21 .91
3 1.33 .88
4 1.46 .84
5 1.61 .80
4.39 =PV of dividends only
P = 4.39 + (68/(1.155 = 22.37 ) = 26.76


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