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RI CO has in issue 6% redeemable bonds quoted at 120% ex int.
Out of the 4 given option the correct statement is
Interest yield 5% and redemption yield is 4%.
How to find out redemption yield?
As I explain in the free lectures, you cannot be asked to calculate the redemption yield (although it is in fact the IRR) and you do not need to calculate it here.
The interest yield is 6/120 = 5%.
The redemption yield also takes into account the gain or loss on redemption. Since the current market value is 120 and the repayment will be less than 120, it means that there will be a loss on redemption and therefore the redemption yield must be less than the interest yield.
Only one of the choices has interest yield at 5% and a redemption yield of less than 5%.
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beta plc pay dividend $ .40 per share. dividend growth is 5% per annum share holder required rate of return is 20%. what is current market value
Use the dividend growth formula from the formula sheet.
(40 x (1.05)) / (0.20 – 0.05) = 280c (or $2.80)
However the formula gives the ex div value, and what you having copied in your question is that the test said they were about to be a dividend (and therefore we need a cum div value).
The cum div value = 2.80 + 0.40 = $3.20
(The free lectures on the valuation of securities will help you)
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