FIN 515 Devry entire course DEVRY FIN 515 Week 4 Problem Set | Page 2

Bond-6. A given bond has five years left to maturity. Interest is paid annually and the
annual coupon rate is 9%. The par value of the bond is $1,000. The bond currently
sells for $1,000. What is the yield to maturity?
9-1.Assume Evco, Inc., has a current price of $50 and will pay a $2 dividend in 1 year,
and its equity cost of capital is 15%. What price must you expect it to sell for right
after paying the dividend in 1 year in order to justify its current price?
9-5.NoGrowth Corporation currently pays a dividend of $2 per year, and it will
continue to pay this dividend forever. What is the price per share if its equity cost of
capital is 15% per year?
9-6.Summit Systems will pay a dividend of $1.50 this year. If you expect Summit’s
dividend to grow by 6% per year, what is its price per share if its equity cost of
capital is 11%?
9-7. Dorpac Corporation has a dividend yield of 1.5%. Dorpac’s equity cost of capital
is 8%, and its dividends are expected to grow at a constant rate. a. What is the
expected growth rate of Dorpac’s dividends? b. What is the expected growth rate of
Dorpac’s share price?
9-12.Procter & Gamble will pay an annual dividend of $0.65 1 year from now.
Analysts expect this dividend to grow at 12% per year thereafter until the fifth year.
After then, growth will level off at 2% per year. According to the dividend-discount
model, what is the value of a share of Procter & Gamble stock if the firm’s equity cost
of capital is 8%?