a) Outstanding bonds at Rolls Royce Inc. carry a rating of AA3. Discuss in detail (a) thefactors that determine a bond's rating and (b) the relationship between a bond's ratingand investors' required rate of return.b) Maddy Co is a public limited company which has managed to increase earnings overthe last year. As a result, the board of directors has increased the dividend payoutratio. The last dividend paid by Maddy Co. was £1.50. The dividend growth rate isexpected to be constant at 15% for 3 years, after which dividends are expected to growat a rate of 6% forever. If the firm's required return (rs) is 11%, what is its current stockprice?c) Which of the following shares are over-valued? Draw the Security Market Line.Current rate ofBetareturnA0.56%B1.212%0.88%The risk-free rate is 5% and the return on the market index is 10%.

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a) Outstanding bonds at Rolls Royce Inc. carry a rating of AA3. Discuss in detail (a) the factors that determine a bond's rating and (b) the relationship between a bond's rating and investors' required rate of return.

a) Outstanding bonds at Rolls Royce Inc. carry a rating of AA3. Discuss in detail (a) the factors that determine a bond's rating and (b) the relationship between a bond's rating and investors' required rate of return.

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

ChapterA2: Investments

Section: Chapter Questions

Problem 7MCQ

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