Home Products: Stock and Bond Valuation

This case discusses the valuation of stocks and bonds. It says that in textbooks, the valuation of stocks and bonds is simply stated as the present value of all the future cash flows expected from the security. The concept is logical, straightforward, and simple. The valuation of bonds is usually presented first, since the relatively certain cash flows are broken into an annuity and a payment of the par value at some specific date in …

…with creditors and bonds, then stocks. Stockholders, preferred and common will distribute residual gains. Preferred stock, claims senior to common stock, junior to debt. 6. What is dividend yield and the expected capital gains yield for HPI common stock? PV = 40.625; PMT = .385 Dividend / Price = (.385 *4) / 40.625 = 3.79% g = 9.7% 7.Given that HPI is selling for $40 5/8, what is its required rate of return? (Use the constant growth valuation model.) P0 = (1+g) D0 / (r - g) 40.625 = 1.6894 / (X - 0.097) 40.625 X - 3.9406 - 1.6894; 40.625 X - 5.63 = 13.86%