Stock and Bond Valuation
Stock and bond valuation separates present worth of periodic income from present worth of the future selling or face value.
$$P=P_1+P_2$$
Stock and bond valuation separates present worth of periodic income from present worth of the future selling or face value.
ABC stock sells for P50, pays P3 annual dividends, and is expected to increase 5% yearly for 5 years. Find the company cost of capital.
Solving $50=3(P/A,i,5)+63.81(P/F,i,5)$ gives $i=10.49\%$.
Final answer: $10.49\%$.
A bond sells for $930, face value $1000, matures in 10 years, pays $70 yearly interest, and broker fee is $15 per bond. Find cost of capital.
Net proceeds: $930-15=915$.
Trial gives $i=8.29\%$.