# Instructions Enter all answersdirectly in this worksheet. W

Instructions: Enter all answersdirectly in this worksheet. When finished select Save As, and save thisdocument using your last name and student ID as the file name. Upload the datasheet to Blackboard as a .doc, .docx or .rtf file when you are finished.Question 1: (10 points). (Bondvaluation) 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’srequired yield to maturity on a comparable-risk bond is 12 percent. Round to thenearest cent. Thevalue of the bond isQuestion 2: (10 points). (Bondvaluation) Enterprise, Inc. bonds have an annual coupon rate of 11 percent. Theinterest is paid semiannually and the bonds mature in 9 years. Their par valueis $1,000. If the market’s required yield to maturity on a comparable-risk bondis 14 percent, what is the value of the bond? What is its value if the interestis paid annually and semiannually? (Round to the nearest cent.)a.The value of the Enterprise bonds if the interest is paid semiannually is$b.The value of the Enterprise bonds if the interest is paid annually is$Question 3: (10 points). (Yieldto maturity) The market price is $750 for a 20-year bond ($1,000 par value)that pays 9 percent annual interest, but makes interest payments on asemiannual basis (4.5 percent semiannually). What is the bond’s yield tomaturity? (Round to two decimal places.)Thebond’s yield to maturity is%Question 4: (10 points). (Yieldto maturity) A bond’s market price is $950. It has a $1,000 par value, willmature in 14 years, and has a coupon interest rate of 8 percent annualinterest, but makes its interest payments semiannually. What is the bond’syield to maturity? What happens to the bond’s yield to maturity if the bondmatures in 28 years? What if it matures in 7 years? (Round to two decimal places.)Thebond’s yield to maturity if it matures in 14 years is%Thebond’s yield to maturity if it matures in 28 years is%Thebond’s yield to maturity if it matures in 7 years is%Question 5: (15 points). (Bond valuationrelationships) 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 tomaturity on a comparable-risk bond is 8 percent. (Round to the nearest cent.) Forquestions with two answer options (e.g. increase/decrease) choose the bestanswer and write it in the answer block.QuestionAnswera.What is the value of the bond if the markers required yield to maturity on acomparable-risk bond is 8 percent? $b.What is the value of the bond if the markers required yield to maturity on acomparable-risk bond increases to 11 percent? $c.What is the value of the bond if the market’s required yield to maturity on acomparable-risk bond decreases to 7 percent?$d.The change in the value of a bond caused by changing interest rates is calledinterest-rate risk. Based on the answer: in parts b and c, a decrease ininterest rates (the yield to maturity) will cause the value of a bond to(increase/decrease): Bycontrast in interest rates will cause the value to (increase/decrease): Also,based on the answers in part b, if the yield to maturity (current interestrate) equals the coupon interest rate, the bond will sell at (par/facevalue):exceedsthe bond’s coupon rate, the bond will sell at a (discount/premium):andis less than the bond’s coupon rate, the bond will sell at a(discount/premium):e.Assume the bond matures in 5 years instead of 25 years, what is the value ofthe bond if the yield to maturity on a comparable-risk bond is 8 percent? $960.07 Assume the bond matures in 5 years instead of 25 years, what is thevalue of the bond if the yield to maturity on a comparable-risk bond is 11percent?$f.Assume the bond matures in 5 years instead of 25 years, what is the value ofthe bond if the yield to maturity on a comparable-risk bond is 7 percent?$g.From the findings in part e, we can conclude that a bondholder owning along-term bond is exposed to (more/less) interest-rate risk than one owning ashort-term bond.Question6: (5 points). (Measuringgrowth) If Pepperdine, Inc.’s return on equity is 14 percent and the managementplans to retain 55 percent of earnings for investment purposes, what will bethe firm’s growth rate? (Round to two decimal places.)Thefirm’s growth rate will be7.70%Question 7: (10 points). (Common stockvaluation) The common stock of NCP paid $1.29 in dividends last year. Dividendsare expected to grow at an annual rate of 6.00 percent for an indefinite numberof years. (Round to the nearest cent.)a.If your required rate of return is 8.70 percent, the value of the stock foryou is:$b.You (should/should not) make the investment if your expected value of thestock is (greater/less) than the current market price because the stock wouldbe undervalued.Question 8: (10 points). (Measuring growth)Given that a firm’s return on equity is 22 percent and management plans toretain 37 percent of earnings for investment purposes, what will be the firm’sgrowth rate? If the firm decides to increase its retention rate, what willhappen to the value of its common stock? (Round to two decimal places.)a.The firm’s growth rate will be:8.14%b.If the firm decides to increase its retention ratio, what will happen to thevalue of its common stock? An increase in the retention rate will (increase/decrease)the rate of growth in dividends, which in turn will (increase/decrease) thevalue of the common stock.Question 9: (10 points). (Relative valuationof common stock) Using the P/E ratio approach to valuation, calculate the valueof a share of stock under the following conditions: theinvestor’s required rate of return is 13 percent, theexpected level of earnings at the end of this year (E1) is $8, thefirm follows a policy of retaining 40 percent of its earnings, thereturn on equity (ROE) is 15 percent,and similarshares of stock sell at multiples of 8.571 times earnings per share. Nowshow that you get the same answer using the discounted dividend model. (Round to thenearest cent.)a.The stock price using the P/E ratio valuation method is:$b.The stock price using the dividend discount model is:$Question 10: (10 points) (Preferredstock valuation) Calculate the value of a preferred stock that pays a dividendof $8.00 per share when the market’s required yield on similar shares is 13percent. (Roundto the nearest cent.)a.The value of the preferred stock is$Pershare