1. Last year, Shanna Young purchased 100 shares of Iowa Farm Implement. During the last 12 months, she received dividends totaling $1.20 a share. During the 12-month period, the company earned $4.00 a share.
a. For the 12-month period, what is the amount of total dividends that Ms. Young received?
b. If a share of Iowa Farm Implement is selling for $52 a share, what is the dividend yield?
2. Charlie Nelson is 50 years old and wants to diversify her investment portfolio and must decide if she should invest in tax-free municipal bonds or corporate bonds. The tax-free bonds are highly rated and pay 4.25 percent. The corporate bonds are more speculative and pay 6.5 percent.
a. If Ms. Nelson is in the 33 percent tax bracket, what is the taxable equivalent yield for the municipal bond?
b. If you were Ms. Nelson, would you choose the municipal bonds or corporate bonds? Justify your answer.
3. James Gomez purchased ten $1,000 corporate bonds issued by JCPenney. The annual interest rate for the bonds is 5.65 percent
a. What is the annual interest amount for each JCPenney bond?
b. If the bonds have a current price quotation of 92, what is the current price of this bond?
c. Given the above information, what is the current yield for a JCPenney bond?
d. If comparable bonds are paying 6.75 percent, what is the approximate market value for your JCPenney bonds?
