6. Little Oil Co. is offering a $1000 par bond with a 8% coupon. The bonds will mature in 10 years. If the current market rate for these kinds of bonds is 6% what will the bond sell for? And is it sold at a discount or premium? 7. Happy Cruise lines issued bonds 5 years ago with par $1000 and a 20 year life when issued. At that time the coupon rate was 12%. Now 10 years later the current market rate for these bonds is only 10%. What should you pay for the bonds now? 9. ABC corp paid its last dividend at $12.00. If it has a constant growth rate of 7% and its owners require a return of 15%, what should the price of the stock be? 10. If a firm will pay a dividend at the end of this year of $4.00 (D 1 ) and its current price is $70 and its constant growth rate is 5% then what is the required rate of return for holders of this stock 11. Candy Corp will pay a $2.40 dividend in the next 12 months. The required rate of return for this stock is 18% and the company has been enjoying a constant rate of growth of 5%. Compute the current value of this stock using the dividend growth model. Now assume that the dividend is increased to $2.70 and the required return increase to 20%. What is the value now? 12. Bob’s Construction Co has a constant growth in earnings per share with the following earnings: 2009: $3.00, and 2014: $4.50. Dividends represent 40% of earnings. If the required rate of return is 14% what is the estimated value of the stock in 2014? 23. The table shows the one-year return distribution of Startup Inc. Calculate the: a. Expected return. b. The standard deviation of the return. Probability 40% 20% 20% 10% 10% Return -80% -85% -60% -20% 1000%
25. Assuming that Novartis AG (NVS) has an EPS of $3.35, based upon the average P/E ratio for its competitors, Novartis' stock price is closest to:
30. You own three stocks: 600 shares of Apple Computer, 10,000 shares of Cisco Systems, and 5000 shares of Colgate-Palmolive. The current share prices and expected returns of Apple, Cisco, and Colgate-Palmolive are, respectively, $500, $20, $100 and 12%, 10%, 8%. a. What are the portfolio weights of the three stocks in your portfolio? b. What is the expected return of your portfolio?
31. Suppose Pepsico's stock has a beta of 0.76. If the risk-free rate is 2% and the expected return of the market portfolio is 6%, what is Pepsico's equity cost of capital? Round to two decimal places.
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Company Ticker Price Earnings Book Value
per Share per Share per Share
Abbott Labs ABT 54.35 3.69 13.79
Bristol-Myers-Squibb BMY 25.45 1.93 7.33
GlaxoSmithKline GSK 41.3 3.15 6.03
Johnson & Johnson JNJ 62.6 4.58 18.27
Merck MRK 36.25 3.81 10.86
Pfizer PFE $18.30 $1.20 8.19
Assuming that Novartis AG (NVS) has an EPS of $3.35, based upon the average P/E ratio for its competitors, Novartis' stock price is closest to: