Question

Alberto has one share of stock and one bond. The total value of the two securities is $1,130.80. The bond has a YTM of 12.63 percent, a coupon rate of 8.32 percent, and a face value of $1,000.00; pays semi-annual coupons with the next one expected in 6 months, and matures in 4 years. The stock pays annual dividends that are expected to grow by 4.45 percent per year forever. The next dividend is expected to be $12.38 and paid

Answer 1

To calculate the present value of the bond, we need to discount the future cash flows using the discount rate. The formula for calculating the present value involves considering both the coupon payments and the face value.

Step-by-step explanation:

To calculate the present value of the bond, we need to discount the future cash flows using the discount rate. In this case, the bond has a face value of $1,000 and pays semi-annual coupons. The yield to maturity (YTM) of the bond is given as 12.63%.

The present value of the future coupons and the face value can be calculated using the formula:

PV = C/(1+r)^1 + C/(1+r)^2 + ... + C/(1+r)^n + F/(1+r)^n

where PV is the present value, C is the coupon payment, r is the discount rate, n is the number of periods, and F is the face value.