Use the Appropriate Factors from Chapter 6, Table 6-4 (Present

question 50

Essay

Use the appropriate factors from Chapter 6, Table 6-4 (Present Value of $1)or Table 6-5 (Present Value of an Annuity of $1), to answer the following questions.
(a.)ABC Co.'s common stock is expected to have a dividend of $8 per share for each of the next six years, and it is estimated that the market value per share will be $78 at the end of six years.If an investor requires a return on investment of 10%, what is the maximum price the investor would be willing to pay for a share of ABC Co.common stock today?
(b.)Gregory bought a bond with a face amount of $1,000, a stated interest rate of 12%, and a maturity date 20 years in the future for $980.The bond pays interest on a semi-annual basis.Eight years have gone by and the market interest rate is now 8%.What is the market value of the bond today?

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Definitions:

Long-Term Mortgage

A type of loan secured by real property that has an extended repayment period, typically ranging from 15 to 30 years.

Common-Size Financial Statement

A financial statement that expresses each line item as a percentage of a base figure, facilitating comparative analysis.

Vertical Analysis

Vertical analysis is a financial statement analysis method where each entry for each of the three categories of accounts (assets, liabilities, and equity) in a balance sheet is represented as a proportion of the total account.

Acid-Test Ratio

A stringent measure of liquidity that assesses a company's ability to meet its short-term obligations without relying on the sale of inventories.