White House officials often exude more confidence than they actually feel about future prospects for the economy. Why might this
1 answer:
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Answer:
<em>Miller-bond</em>:
today: $ 1,167.68
after 1-year: $ 1,157.74
after 3 year: $ 1,136.03
after 7-year: $ 1,084.25
after 11-year: $ 1,018.87
at maturity: $ 1,000.00
<em>Modigliani-bond:</em>
today: $ 847.53
after 1-year: $ 855.49
after 3 year: $ 873.41
after 7-year: $ 918.89
after 11-year: $ 981.14
at maturity: $ 1,000.00
Explanation:
We need to solve for the present value of the coupon payment and maturity of each bonds:
<em><u>Miller:</u></em>
C 80.000
time 12
rate 0.06
PV $670.7075
Maturity 1,000.00
time 12.00
rate 0.06
PV 496.97
PV c $670.7075
PV m $496.9694
Total $1,167.6769
<em>In few years ahead we can capitalize the bod and subtract the coupon payment</em>
<u>after a year:</u>
1.167.669 x (1.06) - 80 = $1,157.7375
<u>after three-year:</u>
1,157.74 x 1.06^2 - 80*1.06 - 80 = 1136.033855
If we are far away then, it is better to re do the main formula
<u>after 7-years:</u>
C 80.000
time 5
rate 0.06
PV $336.9891
Maturity 1,000.00
time 5.00
rate 0.06
PV $747.26
PV c $336.9891
PV m $747.2582
Total $1,084.2473
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<u>1 year before maturity:</u>
last coupon payment + maturity
1,080 /1.06 = 1.018,8679 = 1,018.87
For the Modigliani bond, we repeat the same procedure.
PV
C 30.000
time 24
rate 0.04
PV $457.4089
Maturity 1,000.00
time 24.00
rate 0.04
PV 390.12
PV c $457.4089
PV m $390.1215
Total $847.5304
And we repeat the procedure for other years
Answer:
The stock current intrinsic value is: $39,46
Explanation:
We solve using the gordon model for dividend growth to valuate the price of the stock:
d0 = 2.50
d1 = 2.50 x 1.03 = 2.575
Value: 42,91666666666667
This value is three years therefore, we need to discount:
Maturity $42.9167
time 3.00
rate 0.09000
33.1395
We also have to calcualtethe present value of the first, second and third year dividends
discount rate 0.09
# Cashflow Discounted
1 2.5 2.29
2 2.5 2.1
3 2.5 1.93
PV 6.32
We ad this to the PV of the infinite future dividends growing at 3%
6.32 + 33.1395 = 39,4595