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Homework answers / question archive / 1) Blue Resort case
1) Blue Resort case. Assume a dividend has just been paid. The next dividend, to be paid in a year, is forecast at P3, the growth rate of dividends is g = 8 percent, and the discount rate is r =12 percent. Therefore, what is the price of Blue Resort stock using the constant-growth model? (your answer must be 2 digit number)
2.)Suppose you buy a bond for P1,020 with a 15-year maturity paying an annual coupon of P80. A year later interest rate have dropped and the bond’s price has increased to P1,050. What is the holding period return after a year?(note: your answer must me rounded of to two decimal places then write the % sign; for example: 12.13%)
1)
Current Share price = Expected Dividend (D1) / (Discount rate - growth rate)
Current Share price = P3 / (12% - 8%)
Current Share price = P75
2)
Holding peiod return = (Bond Price after 1 year - Current Bond price + Coupon) / Current Bond price
Holding peiod return = (P1050 - P1020 + P80) / P1020
Holding peiod return = 10.78%