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(Solved) (Latest ver. Aug 2020) - Investment in Stocks and Bonds

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Chapter 11, question 1, page 350;
Discuss the difference between the top-down and bottom-up approaches. What is the major assumption that causes the difference in these two approaches?

Problems 1, 2, 4, 5, page 350
1. What is the value to you of a 9 percent coupon bond with a par value of $10,000 that matures in 10 years if you require a 7 percent return? Use semiannual compounding.

2. What would be the value of the bond in Problem 1 if you required an 11 percent rate of return?

4. The Baron Basketball Company (BBC) earned $10 a share last year and paid a dividend of $6 a share. Next year, you expect BBC to earn $11 and continue its payout ratio. Assume that you expect to sell the stock for $132 a year from now. If you require 12 percent on this stock, how much would you be willing to pay for it?

5. Given the expected earnings and dividend payments in Problem 4, if you expected a selling price of $110 and required an 8 percent return on this investment, how much would you pay for the BBC stock?

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