1. A firm will issue a 2 year Bond paying a 2% Semi-Annually. A 2% Rate .. applies to each of the following: Nominal Risk Free Rate of Return, Inflation Risk Premium, Liquidity Risk Premium, Maturity Risk Premium, and Default Risk Premium. Please compute the Bond Price for the firm.
2. For the scenario in # 1 above, please confirm your Bond Price by confirming your Yield To Maturity.
3. For the scenarios above, please confirm your Bond Price first determining the Future Value, then determining the Present Value of the Future Value.
4. Firm Z has a Debt To Assets Ratio of 20%. If the firm had no Debt in its Capital Structure, the firm’s stock would move in perfect sync with the General Market. The Nominal Risk Free Rate is 4% and the Cost of Living is projected to increase by 2% annually for the foreseeable future. The Corporate Income Tax Rate is 40%. The Expected Rate of Return on the General Market is 16%. There is a 50% chance that Firm Z Stock will generate a 14%… Return. The only other potential .. return on the stock is 18%. Based upon this information, should an investor purchase Firm Z Stock ? Why or why not ? Be sure to show all pertinent computations so that credit can be granted to the fullest extent possible.
5. Two years ago Firm X Stock paid a $ 3.00 Per Share Dividend. Since that time growth has been 5% annually. This (same) growth is projected to continue for the foreseeable future. The % Rate of Return on T-Bills is 2%. The Market Premium is 10% and the stock tends to be 50% more volatile vs. the General Market. Based on this scenario, please determine the Price of Firm X Stock.
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