Workman Software has 6.4% coupon bonds on the market with 18 years to maturity. The bonds make semiannual payments and currently sell for 94.31 percent of par. What is the current yield on the bonds? The YTM? The effective annual yield?

Week 4 Homework Assignment



Please complete the following questions.

1. Workman Software has 6.4% coupon bonds on the market with 18 years to maturity. The bonds make semiannual payments and currently sell for 94.31 percent of par. What is the current yield on the bonds? The YTM? The effective annual yield? (2pts)
2. Jallouk Corporation has two different bonds currently outstanding. Bond M has a face value of $20,000 and matures in 20 years. The bond makes no payments for the first six years, then pays $900 every six months over the subsequent eight years, and finally pays $1,300 every six months over the last six years. Bond N also has a face value of $20,000 and a maturity of 20 years; it makes no coupon payments over the life of the bond. If the required return on both these bonds is 5.4% compounded semiannually, what is the current price of bond M? Of Bond N? (2pts)
3. RAK, Inc., currently has an EPS of $2.45 and an earnings growth of 8%. If the benchmark PE ratio is 23, what is the target share price five years from now? (2pts)
4. Navel County Choppers, Inc., is experiencing rapid growth. The company expects dividends to grow at 18% per year for the next 11 years before leveling off at 4 percent into perpetuity. The required return on the company’s stock is 10%. If the divided per share just paid was $1.94, what is the stock price? (2pts)



5. Storico Co. just paid a dividend of $3.15 per share. The company will increase its dividend by 20% next year and then reduce its dividend growth by 5 percentage points per year, until it reaches the industry average of 5% dividend growth, after which the company will keep a constant growth rate forever. If the required return on the company’s stock is 12%, what will a share of stock sell for today? (2pts)



Question Score
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