Homework of Corporate Finance
The 7th Week
Qizhi Tao
【Coupon Rate】
How does a bond issuer decide on the appropriate coupon rate to set on its bonds? Explain the difference between the coupon rate and the required return on a bond.
【Bond Yield】
One company has 9.2 percent coupon bonds on the market with 9 years to maturity. The bonds make semiannual payments and currently sell for 106.8 percent of par. What is the current yield on the bonds? The YTM? The effective annual yield?
【Common vs. Preferred Stock】
Suppose a company has a preferred stock issue and a common stock issue. Both have just paid a 2 dividend. Which do you think will have a higher price, a share of the preferred or a share of the common?
【Nonconstant Growth】
One company just paid a dividend of 2.45 per share. The company will increase its dividend by 20% next year and will then reduce its dividend growth rate 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 this company is 11%, what will a share of stock sell for today?
Deadline of handing in homework is 5pm, 23th Oct. (Wednesday)
Dengyun Ning
