Question 4A H&M is looking for financial investment in the securities market. Two investment options are available in different securities: Bonds and ordinary shares. ABC Corporate bond: the bond is...

Question 4A

H&M is looking for financial investment in the securities market.  Two investment options are available in different securities: Bonds and ordinary shares.

• 
  ABC Corporate bond:
  the bond is paying 13% coupon rate. Interest is paid semi-annually. The bonds have a face value of $1,000 and will mature 12 years from now.

• 
  XYZ ordinary share:
  The company Management plans to pay a dividend of $8.50 per share next year and estimated steady growth of 3% in dividends over the foreseeable future. The required rate of return for shares of this type is 15%.

Required:

1. Compute the current value of the ABC Corporate bond if the YTM of the bond is 11.5% annually