Sugar Land Co. is a fast growing firm and no dividend will be paid on the stock over the next 9
years. The company then will pay a $12 dividend per share in year 10 and will increase the
dividend by 5 percent forever. If the required rate of return for this stock is 13 %, what should
be the intrinsic value of Sugar Land Co.?
Victoria bond is a premium bond with 8% coupon. Houston bond is a 4 % coupon bond currently selling at a discount. Both bonds make annual payments and have a yield to maturity (YTM) of 6%, and have 5 years till maturity.
a. Estimate their prices (Bond prices).
b. Estimate their current yields
c. If interest rates remain unchanged by next year, estimate their prices a year from now.
d. Estimate their first year capital gain yields. Hint: CGY = (P1-P0)/P0