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Instructions: Enter all answers
directly in this worksheet. When finished select Save As, and save this
document using your last name and student ID as the file name. Upload the data
sheet to Blackboard as a .doc, .docx or .rtf file when you are finished.
Question 1: (10 points). (Bond
valuation) Calculate the value of a bond that matures in 12 years and has
$1,000 par value. The annual coupon interest rate is 9 percent and the market’s
required yield to maturity on a comparablerisk bond is 12 percent. Round to the
nearest cent.
The 
Question 2: (10 points). (Bond
valuation) Enterprise, Inc. bonds have an annual coupon rate of 11 percent. The
interest is paid semiannually and the bonds mature in 9 years. Their par value
is $1,000. If the market’s required yield to maturity on a comparablerisk bond
is 14 percent, what is the value of the bond? What is its value if the interest
is paid annually and semiannually? (Round to the nearest cent.)
a. 
$ 
b. 
$ 
Question 3: (10 points). (Yield
to maturity) The market price is $750 for a 20year bond ($1,000 par value)
that pays 9 percent annual interest, but makes interest payments on a
semiannual basis (4.5 percent semiannually). What is the bond’s yield to
maturity? (Round to two decimal places.)
The 
% 
Question 4: (10 points). (Yield
to maturity) A bond’s market price is $950. It has a $1,000 par value, will
mature in 14 years, and has a coupon interest rate of 8 percent annual
interest, but makes its interest payments semiannually. What is the bond’s
yield to maturity? What happens to the bond’s yield to maturity if the bond
matures in 28 years? What if it matures in 7 years? (Round to two decimal places.)
The 
% 

The 
% 

The 
% 
Question 5: (15 points). (Bond valuation
relationships) Arizona Public Utilities issued a bond that pays $70 in interest,
with a $1,000 par value and matures in 25 years. The markers required yield to
maturity on a comparablerisk bond is 8 percent. (Round to the nearest cent.) For
questions with two answer options (e.g. increase/decrease) choose the best
answer and write it in the answer block.
Question 
Answer 
a. 
$ 
b. 
$ 
c. 
$ 
d. 

By 

Also, 

exceeds 

and 

e. 
$ 
f. 
$ 
g. 
Question
6: (5 points). (Measuring
growth) If Pepperdine, Inc.’s return on equity is 14 percent and the management
plans to retain 55 percent of earnings for investment purposes, what will be
the firm’s growth rate? (Round to two decimal places.)
The 
7.70 
% 
Question 7: (10 points). (Common stock
valuation) The common stock of NCP paid $1.29 in dividends last year. Dividends
are expected to grow at an annual rate of 6.00 percent for an indefinite number
of years. (Round to the nearest cent.)
a. 
$ 

b. 
Question 8: (10 points). (Measuring growth)
Given that a firm’s return on equity is 22 percent and management plans to
retain 37 percent of earnings for investment purposes, what will be the firm’s
growth rate? If the firm decides to increase its retention rate, what will
happen to the value of its common stock? (Round to two decimal places.)
a. 
8.14% 

b. 
Question 9: (10 points). (Relative valuation
of common stock) Using the P/E ratio approach to valuation, calculate the value
of a share of stock under the following conditions:

the
investor’s required rate of return is 13 percent, 
the
expected level of earnings at the end of this year (E_{1}) is $8, 
the
firm follows a policy of retaining 40 percent of its earnings, 
the
return on equity (ROE) is 15 percent,
and 
similar
shares of stock sell at multiples of 8.571 times earnings per share.
Now
show that you get the same answer using the discounted dividend model. (Round to the
nearest cent.)
a. 
$ 
b. 
$ 
Question 10: (10 points) (Preferred
stock valuation) Calculate the value of a preferred stock that pays a dividend
of $8.00 per share when the market’s required yield on similar shares is 13
percent. (Round
to the nearest cent.)
a. 
$ 
Per 
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