1. What is the price of the following quarterly bond?

Is it is premium,
discount or par value bond?
face value:
maturity:
coupon rate:
discount rate:

1,000
10 years
10%
8%

2. What is the price of the following semi-annual bond? Is it is premium,

discount or par value bond?
face value:
maturity:
coupon rate:
discount rate:

$1,000
10 years
8%
9%

Bond Returns
3. What is the yield to maturity (YTM) and the yield to call (YTC) of the
following annual bond?
face value:
maturity:
coupon rate:
price:
call price:
years to call:

$1,000
10 years
8%
$925
$1,150
5

4. What is the yield to maturity and the yield to call of the following
annual bond?
face value:
maturity:
coupon rate:
price:
call price:
years to call:

$1,000
50 years
10%
$850
$1,100
10

5. What is the yield to maturity and the yield to call of the following
semi-annual bond?
face value:
maturity:
coupon rate:
price:
call price:
years to call:

$1,000
10 years
10%
$1,000
$1,150
4

6. What is the yield to maturity and the yield to call of the following
semi-annual bond?
face value:
maturity:
coupon rate:
price:
call price:
years to call:

$1,000
9.5 years
7%
$1,020
$1,150
3

7. What is the yield to maturity and the yield to call of the following
quarterly bond?
face value:
maturity:
coupon rate:
price:
call price:
years to call:

1,000
10 years
10%
$1,100
$1,200
5

Common Stock
8. KKL Enterprises pays a dividend of $1.50, and you expect the
dividend to remain constant. How much would you pay for the
stock, if your required rate of return were 11%?
9. GBS Enterprises has just paid a dividend of $2.00, and you expect
the dividend to increase at 3% forever. How much would you pay
for the stock, if your required rate of return were 9%?

10. GHI Corporation has just paid a dividend of $1.00, and it is

expected to increase for four years at 8%. Thereafter, it will increase
at 2% and r = 7%?
11. What is the price of XZZ common stock? d0 = $2.00 and is expected
to increase for three years at 10%. Thereafter, it will increase at 2%
and r = 7%.
12. GEF Corporation is expected to pay a constant dividend for the
next three years. In the fourth year, the dividends will begin to grow
constantly by 1.3%. If this year's dividend was $3.00 and the
appropriate discount rate is 7%, what is the current price of GEF
stock?
13. JKH Corporation is expected to pay the following dividends, d1
=$1.34; d2 = $1.78; d3 = $2.01, for the next three years. The dividends
will to grow constantly by 2.4%, and the appropriate discount rate is
7%, what is the current price of JKH stock?
14. YHT Corporation is expected to pay a dividend growing at 30% for
the next three years. In the fourth year, the dividends will begin to
grow constantly by 1.5%. If this year's dividend was $5.00 and the
appropriate discount rate is 13%, what is the current price of YHT
stock?

Preferred Stock
15. A firm pays a preferred dividend of $5.50, and the required rate of
return is 10.2%. What should be the price of the preferred share?
16. A firm pays a preferred dividend of $6.20, and the required rate of
return is 8.9%. What should be the price of the preferred share?
17. A firm pays a preferred dividend of $3.30, and the required rate of
return is 10.7%. What should be the price of the preferred share?
18. A firm pays a preferred dividend of $7.60, and the required rate of
return is 8.3%. What should be the price of the preferred share?

19. A firm pays a preferred dividend of $7.45, and the required rate of
return is 11.2%. What should be the price of the preferred share?

Implied Rate of Return and Growth

20. HJJ Enterprises has just paid a dividend of $1.50. If you expect the
dividend to increase at 4% forever, and you are now willing to pay
$27.50 for the stock. What is the implied required rate of return?
21. GII Enterprises will pay a dividend of $1.50 next year, and your
required rate of return is 12%. If you expect the dividend to grow
forever (at a constant rate), and you are now willing to pay $30.00
to purchase GII stock. What must the implied growth rate?
22. IIL has pays a constant dividend of $1.50, and you are now to pay
$30.00 for the stock. What is the implied required rate of return?
23. IKI Enterprises has just paid a dividend of $4.50. You expect the
dividend to increase at 3.2% forever, and you are now willing to pay
$55.54 for the stock. What is the implied required rate of return?
24. A firm will pay a dividend of $3.31 next year, and your required rate
of return is 15.7%. If you expect the dividend to grow forever (at a
constant rate), and you are now willing to pay $30.00 to purchase
the stock. What must the implied growth rate?
25. A firm pays a preferred dividend of $3.45 on a share currently
selling for $45.33. What is the implied required rate of return?

Solutions
NOTE: I include the formulae solutions but you only need to know how to
do this on a financial calculator.

Bond Valuation
1. What is the price of the following annual bond? Is it is premium,
discount or par value bond?
face value:
maturity:
coupon rate:
discount rate:

$1,000
10 years
8%
9%

1,000
80.00
1
1

0.09 1.09 10 1.09 10

VD $935.82

VD

P/Y = 1; N = 10; I/Y = 9; PV = $935.82; PMT = -80; FV = -1,000

PMT = 1,000 x 0.08 = 80
Discount bond, since the price is less than the par value.
2. What is the price of the following annual bond? Is it is premium,
discount or par value bond?
face value:
maturity:
coupon rate:
discount rate:

$1,000
50 years
10%
12%

1,000
100.00
1
1

0.12 1.12 50 1.12 50

VD $833.91

VD

P/Y = 1; N = 50; I/Y = 12; PV = $833.91; PMT = -100; FV = -1,000

PMT = 1,000 x 0.10 = 100
Discount bond, since the price is less than the par value.

3. What is the value of the following semi-annual bond? Is it is

premium, discount or par value bond?
face value:
maturity:
coupon rate:
discount rate:

$1,000
10 years
10%
9%

50.00
1
1,000

VD
1
102
0.09 0.09 0.09 102
2 1 2 1 2

VD $1,065.04
P/Y = 2; N = 20; I/Y = 9; PV = $1,065.04; PMT = -50; FV = -1,000
PMT = (1,000 x 0.10)/2 = 50
N = 10 x 2 = 20
Premium bond, since the price is greater than the par value.
4. What is the value of the following semi-annual bond? Is it is
premium, discount or par value bond?
face value:
maturity:
coupon rate:
discount rate:

$1,000
9.5 years
7%
7%

NOTE: Since coupon rate = discount rate, this must be a par value
bond, and the price is $1,000, or

35.00
1
1,000

VD
1
9.52
0.07 9.52
0.07 0.07
1
2 1 2
2

VD $1,000.00
P/Y = 2; N = 19; I/Y = 7; PV = $1,000.00; PMT = -35; FV = -1,000
PMT = (1,000 x 0.07)/2 = 35
N = 9.5 x 2 = 19
Par value bond, since the price equals the par value.

5. What is the value of the following semi-annual bond? Is it is

premium, discount or par value bond?
face value:
maturity:
coupon rate:
discount rate:

$1,000
20 years
9%
10%

45.00
1
1,000

VD
1
202
0.10 0.10 0.10 202
2 1 2 1 2

VD $914.20
P/Y = 2; N = 40; I/Y = 10; PV = $914.20; PMT = -45; FV = -1,000
PMT = (1,000 x 0.09)/2 = 45
N = 20 x 2 = 40
Discount bond, since the price is less than the par value.
6. What is the price of the following quarterly bond? Is it is premium,
discount or par value bond?
face value:
maturity:
coupon rate:
discount rate:

1,000
10 years
10%
8%

25.00
1
1,000

VD
1
104
0.08 0.08 0.08 104
4 1 4 1 4

VD $1,136.78
P/Y = 4; N = 40; I/Y = 8; PV = $1,136.78; PMT = -25; FV = -1,000
PMT = (1,000 x 0.10)/4 = 45
N = 10 x 4 = 40
Premium bond, since the price is greater than the par value.

7. What is the price of the following semi-annual bond? Is it is

premium, discount or par value bond?
face value:
maturity:
coupon rate:
discount rate:

$1,000
10 years
8%
9%

40.00
1
1,000

VD
1
102
0.09 0.09 0.09 102
2 1 2 1 2

VD $934.96
P/Y = 2; N = 20; I/Y = 9; PV = $934.96; PMT = -40; FV = -1,000
PMT = (1,000 x 0.08)/2 = 40
N = 10 x 2 = 20
Discount bond, since the price is less than the par value.

Bond Returns
8. What is the yield to maturity (YTM) and the yield to call (YTC) of the
following annual bond?
face value:
maturity:
coupon rate:
price:
call price:
years to call:

$1,000
10 years
8%
$925
$1,150
5

YTM: P/Y = 1; N = 10; I/Y = 9.18%; PV = 925; PMT = -80; FV = -1,000

PMT = 1,000 x 0.08 = 80
YTC: P/Y = 1; N = 5; I/Y = 12.44%; PV = 925; PMT = -80; FV = -1,150
PMT = 1,000 x 0.08 = 80
9. What is the yield to maturity and the yield to call of the following
annual bond?
face value:

$1,000

maturity:
coupon rate:
price:
call price:
years to call:

50 years
10%
$850
$1,100
10

YTM: P/Y = 1; N = 50; I/Y = 11.77%; PV = 850; PMT = -100; FV = -1,000

PMT = 1,000 x 0.10 = 100
YTC: P/Y = 1; N = 10; I/Y = 13.34%; PV = 850; PMT = -100; FV = -1,100
PMT = 1,000 x 0.10 = 100
10. What is the yield to maturity and the yield to call of the following
semi-annual bond?
face value:
maturity:
coupon rate:
price:
call price:
years to call:

$1,000
10 years
10%
$1,000
$1,150
4

YTM: P/Y = 2; N = 20; I/Y = 10%; PV = 1,000; PMT = -50; FV = -1,000

PMT = (1,000 x 0.10)/2 = 50
N = 10 x 2 = 20
YTC: P/Y = 2; N = 8; I/Y = 12.98%; PV = 1,000; PMT = -50; FV = -1,150
PMT = (1,000 x 0.10)/2 = 50
N=4x2=8
11. What is the yield to maturity and the yield to call of the following
semi-annual bond?
face value:
maturity:
coupon rate:
price:
call price:
years to call:

$1,000
9.5 years
7%
$1,020
$1,150
3

YTM: P/Y = 2; N = 19; I/Y = 6.71%; PV = 1,020; PMT = -35; FV = -1,000

PMT = (1,000 x 0.07)/2 = 35
N = 9.5 x 2 = 19

YTC: P/Y = 2; N = 6; I/Y = 10.58%; PV = 1,020; PMT = -35; FV = -1,150

PMT = (1,000 x 0.07)/2 = 35
N=3x2=6
12. What is the yield to maturity and the yield to call of the following
quarterly bond?
face value:
maturity:
coupon rate:
price:
call price:
years to call:

1,000
10 years
10%
$1,100
$1,200
5

YTM: P/Y = 4; N = 40; I/Y = 8.51%; PV = 1,100; PMT = -25; FV = -1,000

PMT = (1,000 x 0.10)/4 = 45
N = 10 x 4 = 40
YTC: P/Y = 4; N = 20; I/Y = 10.50%; PV = 1,100; PMT = -25; FV = -1,200
PMT = (1,000 x 0.10)/4 = 45
N = 5 x 4 = 20

Common Stock
13. KKL Enterprises pays a dividend of $1.50, and you expect the
dividend to remain constant. How much would you pay for the
stock, if your required rate of return were 11%?

1.50
0.11
$13.64

VCE
VCE

14. GBS Enterprises has just paid a dividend of $2.00, and you expect
the dividend to increase at 3% forever. How much would you pay
for the stock, if your required rate of return were 9%?

2.00 1.03
0.09 0.03
$34.33

VCE
VCE

15. GHI Corporation has just paid a dividend of $1.00, and it is

expected to increase for four years at 8%. Thereafter, it will increase
at 2% and r = 7%?

d0 = $1.00; d1 = $1.08; d2 = $1.17; d3 = $1.26; d4 = $1.36; d5 = $1.39

VCE

1.39
1.08
1.17
1.26
1.36

0.07 0.02
2
3
4
4
1.07 1.07
1.07 1.07
1.07

VCE $25.30
16. What is the price of XZZ common stock? d0 = $2.00 and is expected
to increase for three years at 10%. Thereafter, it will increase at 2%
and r = 7%.

d0 = $2.00; d1 = $2.20; d2 = $2.42; d3 = $2.66; d4 = $2.71

VCE

2.71
2.20
2.42
2.66

0.07 0.02
2
3
3
1.07 1.07
1.07
1.07

VCE $50.59
17. GEF Corporation is expected to pay a constant dividend for the
next three years. In the fourth year, the dividends will begin to grow
constantly by 1.3%. If this year's dividend was $3.00 and the
appropriate discount rate is 7%, what is the current price of GEF
stock?

d0 = $3.00; d1 = $3.00; d2 = $3.00; d3 = $3.00; d4 = $3.04

VCE
VCE

3.04
3.00
1 0.07 0.013
1

3
0.07 1.07 3
1.07

$51.41

18. JKH Corporation is expected to pay the following dividends, d1

=$1.34; d2 = $1.78; d3 = $2.01, for the next three years. The dividends

will to grow constantly by 2.4%, and the appropriate discount rate is

7%, what is the current price of JKH stock?

d1 = $1.34; d2 = $1.78; d3 = $2.01; d4 = $2.06

VCE

2.06
1.34
1.78
2.01

0.07 0.024
2
3
3
1.07 1.07 1.07
1.07

VCE $40.97
19. YHT Corporation is expected to pay a dividend growing at 30% for
the next three years. In the fourth year, the dividends will begin to
grow constantly by 1.5%. If this year's dividend was $5.00 and the
appropriate discount rate is 13%, what is the current price of YHT
stock?

d0 = $5.00;d1 = $6.50; d2 = $8.45; d3 = $10.99; d4 = $11.15

VCE

11.15
6.50
8.45
10.99 0.13 0.015

3
1.13 1.13 2 1.13 3
1.13

VCE $87.18

Preferred Stock
20. A firm pays a preferred dividend of $5.50, and the required rate of
return is 10.2%. What should be the price of the preferred share?

5.50
0.102
$53.92

VPS
VPS

21. A firm pays a preferred dividend of $6.20, and the required rate of
return is 8.9%. What should be the price of the preferred share?

6.20
0.089
$69.66

VPS
VPS

22. A firm pays a preferred dividend of $3.30, and the required rate of
return is 10.7%. What should be the price of the preferred share?

3.30
0.107
$30.84

VPS
VPS

23. A firm pays a preferred dividend of $7.60, and the required rate of
return is 8.3%. What should be the price of the preferred share?

7.60
0.083
$91.57

VPS
VPS

24. A firm pays a preferred dividend of $7.45, and the required rate of
return is 11.2%. What should be the price of the preferred share?

7.45
0.112
$66.52

VPS
VPS

Implied Rate of Return and Growth

25. HJJ Enterprises has just paid a dividend of $1.50. If you expect the
dividend to increase at 4% forever, and you are now willing to pay
$27.50 for the stock. What is the implied required rate of return?

1.50 1.04
r 0.04
1.50 1.04
r 0.04
27.50
1.50 1.04
r
0.04
27.50
Implied Return 9.67%
27.50

26. GII Enterprises will pay a dividend of $1.50 next year, and your
required rate of return is 12%. If you expect the dividend to grow

forever (at a constant rate), and you are now willing to pay $30.00
to purchase GII stock. What must the implied growth rate?

1.50
0.12 g
1.50
0.12 g
30.00
1.50
g
0.12
30.00
1.50
g
0.12
30.00
Implied Growth Rate 7.00%
30.00

27. IIL has pays a constant dividend of $1.50, and you are now to pay
$30.00 for the stock. What is the implied required rate of return?

1.59
r
1.59
r
30.00
Implied Return 5.3%
30.00

28. IKI Enterprises has just paid a dividend of $4.50. You expect the
dividend to increase at 3.2% forever, and you are now willing to pay
$55.54 for the stock. What is the implied required rate of return?

4.50 1.032
r 0.032
4.50 1.032
r 0.032
55.54
4.50 1.032
r
0.032
55.54
Implied Return 11.56%
55.54

29. A firm will pay a dividend of $3.31 next year, and your required rate
of return is 15.7%. If you expect the dividend to grow forever (at a
constant rate), and you are now willing to pay $30.00 to purchase
the stock. What must the implied growth rate?

3.31
0.157 g
3.31
0.157 g
30.00
3.31
g
0.157
30.00
3.31
g
0.157
30.00
Implied Growth Rate 4.67%
30.00

30. A firm pays a preferred dividend of $3.45 on a share currently

selling for $45.33. What is the implied required rate of return?

3.45
r
3.45
r
45.33
Implied Return 7.61%
45.33