BUS 401 Week 2 DQ2 Problem 7-10 and Problem 8-16

Bonds and Common Stocks. Complete Study Problem 7-10 from the end of Chapter 7 and Study Problem 8-16 from the end of Chapter 8 and post your answers to the discussion board. Remember to complete all parts of the problems and report the results of your analysis. Since the values will be less than $10,000, show the values rounded to the penny. Show all percentages to two decimal places as percentages. Do not forget to show the necessary steps and explain how your attained that outcome.

7-10 (Bond valuation) National Steel 15-year, $1,000 par value bonds pay 8 percent interest annually. The market price of the bonds is $1,085, and your required rate of return is 10 percent.

a.Compute the bonds expected rate of return.

b.Determine the value of the bond to you, given your required rate of return.

c.Should you purchase the bond?

8-16 (Common stock valuation) The common stock of NCP paid $1.32 in dividends last year. Dividends are expected to grow at an 8 percent annual rate for an indefinite number of years.

a.If NCPs current market price is $23.50 per share, what is the stocks expected rate of return?

b.If your required rate of return is 10.5 percent, what is the value of the stock for you?

c.Should you make the investment?