Answer:
YTM = 6.13%
Explanation:
As we know that: YTM = [C +(F-P/n) ] / (F+ P) / 2
where C= Coupon payment = 1000 * 6% = $60.
F = face value of bond = $1000
P= Price of bond = $ 981.45
n= Years to maturity = 24 years
Solution:
YTM = 60 +[ (1000-981.45) / 24] / (1000+981.45) / 2
=( 60 + .7729) / 990.72
= 60.7729 / 990.72
= 6.13%
Answer:
The most you would pay per share is $18.90 price per share today.
Explanation:
Note: See the attached file for the calculation of present values for year 1 to 3 dividends.
From the attached excel file, we have:
Previous year dividend in year 1 = Dividend just paid = $1.40
Total of PV of dividends from year 1 to year 3 = $4.50720663265306
Year 3 dividend = $1.55542091836735
Therefore, we have:
Year 4 dividend = Year 3 dividend * (100% + Dividend growth rate in year 4) = $1.55542091836735 * (100% + 4%) = $1.61763775510204
Price at year 3 = Year 4 dividend / (Rate of return - Perpetual dividend growth rate) = $1.61763775510204 / (12% - 4%) = $20.2204719387755
PV of price at year 3 = Price at year 3 / (100% + Required return)^Number of years = $20.2204719387755 / (100% + 12%)^3 = $14.3925325274857
Price per share today = Total of PV of dividends from year 1 to year 3 + PV of price at year 3 = $4.50720663265306 + $14.3925325274857 = $18.90
Therefore, the most you would pay per share is $18.90 price per share today.
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