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Bond and Stock Valuations Questions

The document covers various aspects of bond and stock valuation, including calculations for bond prices, yield to maturity (YTM), yield to call (YTC), and stock value based on dividend growth rates. It provides specific examples with calculations for bonds with different coupon rates and maturities, as well as stock valuations under different growth assumptions. Key results include bond values, YTM, YTC, and stock prices based on given financial metrics.

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Sangam Acharya
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39 views1 page

Bond and Stock Valuations Questions

The document covers various aspects of bond and stock valuation, including calculations for bond prices, yield to maturity (YTM), yield to call (YTC), and stock value based on dividend growth rates. It provides specific examples with calculations for bonds with different coupon rates and maturities, as well as stock valuations under different growth assumptions. Key results include bond values, YTM, YTC, and stock prices based on given financial metrics.

Uploaded by

Sangam Acharya
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Assignment on Bond and Stock valuation

1. Bond Valuations: Suppose that a company issue the par value bond with a 10 percent coupon and 10 years to maturity. One year
has been passed since the issue of bond. Hence only it has nine years to maturity. The coupon rate corresponding to interest
payments of Rs 100 a year. If the required rate of return on the bond is 12 percent. What would be the value of bond today when
time to maturity is 9 years but the coupons were paid semiannually? Ans. Rs 893.42. and Rs. 891.72

2. Valuation and YTM of zero coupon bond: What would be the fair marke value of a Rs. 1,000 par and 10 years to zero coupon
bond if similar risky bond yields just 7% percent? What rate of return would you earn if you actually purchased this bond today,
when time to maturity is 10 years, at Rs. 463.19? Ans. Rs. 508.35 and YTM= 8%

3. YTM: ABC Company’s bonds have the maturity period of 12 years. Interest is paid annually, the bonds have a Rs 1,000 par
value, and the coupon interest rate is 10 percent. The bonds sell at a price of Rs 850. Ans. The approximate yield to maturity is 12.5
percent and actual yield to maturity is 12.4870 percent.

4. YTC: Suppose you recently purchased a bond with a Rs.1,000 face value, a 10% coupon rate, and four years to maturity. The
bond makes annual interest payments, the first to be received one year from today. You paid Rs.1,032.40 for the bond. If the bond
can be called two years from now at a price of Rs.1,100. Compute approximate yield to call and the actual yield to call. Ans. AYTC
= 12.68 percent and YTC =12.76 percent.

5. Common stock of Vetrox Ltd. currently pays an annual dividend of Rs. 1.80 per share. The required return on the common stock
is 12 percent. Estimate the value of the common stock under each of the following dividend growth rate assumptions:
a. Dividends are expected to grow at an annual rate of zero percent to infinity.
b. Dividends are expected to grow at a cons tant annual rate of 5 percent to infinity.
c. Dividends are expected to grow at an annual rate of 5 percent for each of the next 3 years followed by a constant annual
growth rate of 4 percent in years 4 to infinity. Ans a. Rs. 15 b. Rs. 27 c. 24.03

6. Coconut Biscuit Company's current stock price is Rs.36 and its last dividend was Rs.2.40. In view of company's strong financial position
and its consequent low risk, its required rate of return is only 12 percent. If dividends are expected to grow at a constant rate in the future,
and if required rate of return on stock is expected to remain at 12 percent.
a. If the stock is fairly priced, what is the annual growth rate?
b. What is company's expected stock price 5 years from now? Ans. g=5% and V5 = Rs. 45.05

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