The writer is very fast, professional and responded to the review request fast also. Thank you.
Can you please help answer this problem?
25) Suppose that an investor has 8-year investment horizon. The investor is
considering a 15-year semi-annual coupon bond selling at $990 (par value is
$1000) and having a coupon rate of 4%. The investor expectations are as follows:
• The first 4 semi-annual coupon payments can be reinvested from the time of
receipt to the end of the investment horizon at an annual interest rate of 4%,
• the first 8 semi-annual coupon payments can be reinvested from the time of
receipt to the end of the investment horizon at an annual interest rate of 4.25%,
• the last 4 semi-annual coupon payments can be reinvested from the time of
receipt to the end of the investment horizon at a 3.75% annual interest rate, and
• the required market interest/discount rate on 7-year bonds at the end of the
investment horizon is 3.6%.
A) What is the YTM of the bond?
B) What is the total return on bond equivalent basis from investing in the
bond?
C) Please explain your result carefully.
26) Consider a growth stock. Laramie Connection (LC) has the following data:
• Expected EPS next year is $6.50;
• Payout ratio is 40%;
• Return on equity (ROE) is 25%
• Costs of capital or discount rate, r = 20%.
A) What is the value of LC’s stock? What is the value of LC’s growth
opportunity?
B) What happens to the value of LC’s stock if the company increases the
payout ratio from 40% to 60%?
C) What is the change in the value of LC’s growth opportunity relative to part
(A) answer? Please explain.
D) What happens to the value of LC’s stock if the company increases the
payout ratio from 40% to 60%, and its ROE is 10% instead of 25%? What is
the change in the value of LC’s growth opportunity relative to part (A) and
part (B) answers? Please explain.
Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.
You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.
Read moreEach paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.
Read moreThanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.
Read moreYour email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.
Read moreBy sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.
Read more