Answered: . Metrobank’s stock is currently…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 6P

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Question

1. Metrobank’s stock is currently trading at P25 per share. The stock’s dividend is projected to increase at a constant rate of 7 percent per year. The required rate of return on the stock is 10 percent. What is the expected stock price five years from today?

a. P32.77

b. P35.06

c. P36.60

d. P28.14

2. World Wide Interlink Corp. has decided to undertake a large project. Consequently, there is a need for additional funds. The financial manager plans to issue preferred stock with an annual dividend of P5 per share. The stock will have a par value of P30. If investors’ required rate of return on this investment is currently 20%, what should the preferred stock’s market value be?

a. P20

b. P10

c. P25

d. P15

3. Assume that you wish to purchase a 30-year bond that has a maturity value of P1,000 and a coupon interest rate of 9.5%, paid semiannually. If you require a 6.75% rate of return on this investment, what is the maximum price that you should be willing to pay for this bond?

a. P1,352

b. P1,450

c. P1,111

d. P675

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