the common stock of salazar insurance pays a constant annual dividend of $4.80 per share. what is one share of this stock worth
1 answer:
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Answer:
discount bond.
Explanation:
A premium bond is one whose price is above its par value, while a discount bond is one whose price is below its par value. Therefore, to find the answer, we need to find the price of the bond.
To find the price of the bond, we use the formula attached in this answer.
In the formula, YTM = Yield to Maturity, C = Value of the Coupon payment, P = par value of the bond, and n = number of periods till matirity.
We have this information.
YTM = 16%
P = 1,000
The number of periods n = 32 because it is a 16-year bond that pays a semiannual coupon, so 16*2 = 32
Finally, the coupon payment is 45 because the coupon rate is 9%, and the coupon is paid semiannually, so the formula is 9%*1,000 / 2.
Plugging the amounts into the formula we obtain the following answer:
Price of the bond = 287.5
Because the price of the bond is so much lower than its par value, the bond is a discount bond.
