Answer:
b. Will always be higher than the dividend paid per share
Explanation:
A firm pays dividend to it's stockholders based upon it's earnings.
Earnings per share (EPS) is expressed as:
=
Dividend payout ratio on the other hand is expressed as:
= EPS (1 - b)
wherein, b = retention ratio which denotes the percentage of earnings retained by a firm i.e not distributed as dividends.
Thus, a firm's earnings per share would always be higher than the dividend paid by it per share.
Answer:
a.
Bond Price = $563,333.90007 rounded off to $563,333.90
b.
Bond Price = $502500
c.
Bond Price = $437232.16025 rounded off to $437232.16
Explanation:
To calculate the quote/price of the bond today, which is the present value of the bond, we will use the formula for the price of the bond. As the bond is a semi annual bond, we will use the semi annual coupon payment, semi annual number of periods and semi annual YTM. The formula to calculate the price of the bonds today is attached.
a. Case A: Market interest rate (annual): 4 percent
Coupon Payment (C) = 502500 * 0.06 * 6/12 = $15075
Total periods remaining (n) = 7 * 2 = 14
r or YTM = 4% * 6/12 = 0.02 or 2%
Bond Price = 15075 * [( 1 - (1+0.02)^-14) / 0.02] + 502500 / (1+0.02)^14
Bond Price = $563,333.90007 rounded off to $563,333.90
b. Case B: Market interest rate (annual): 6 percent
Coupon Payment (C) = 502500 * 0.06 * 6/12 = $15075
Total periods remaining (n) = 7 * 2 = 14
r or YTM = 6% * 6/12 = 0.03 or 3%
Bond Price = 15075 * [( 1 - (1+0.03)^-14) / 0.03] + 502500 / (1+0.03)^14
Bond Price = $502500
c. Case C: Market interest rate (annual): 8.5 percent.
Coupon Payment (C) = 502500 * 0.06 * 6/12 = $15075
Total periods remaining (n) = 7 * 2 = 14
r or YTM = 8.5% * 6/12 = 0.0425 or 4.25%
Bond Price = 15075 * [( 1 - (1+0.0425)^-14) / 0.0425] + 502500/(1+0.0425)^14
Bond Price = $437232.16025 rounded off to $437232.16
