What do bond ratings reflect or indicate to investors about the borrower?

Below are the formulas for Exam 2:

We covered three scenarios for estimating all future dividends. State each scenario, briefly describe and state how we estimate the stock price under each scenario.

A bond trader purchased a(n) -year, % coupon bond at a yield to maturity of %. Immediately after she purchased the bonds, interest rates fell to %. What is the percentage change in the price of the bond after the decline in interest rates?  Assume annual coupons and annual compounding. Do not round intermediate calculations. Round your answer to two decimal places and express in percentage form (x.xx%).

The real risk-free rate is %, and inflation is expected to be % for the next 2 years and then % thereafter. A 5-year Treasury security yields %. What is the maturity risk premium for the 5-year security? Round your answer to two decimal places and express in percentage form (x.xx%).

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I found and read the course syllabus.

You buy a share of The Ludwig Corporation stock for $. You expect it to pay dividends of $2.15, $2.3650, and $2.6015 in Years 1, 2, and 3, respectively, and you expect to sell it at a price of $ at the end of 3 years. Assuming that going forward, dividends are expected to grow at the same rate at which they have grown over the last three years, you can add the dividend yield to the expected growth rate to obtain the expected total rate of return. What is this stock’s expected total rate of return ? Do not round intermediate calculations. Round your answer to two decimal places and express in percentage form (x.xx%).

Lane Manufacturing’s stock currently sells for $21 a share. The stock just paid a dividend of $1.20 a share (i.e., D0 = $1.20), and the dividend is expected to grow forever at a constant rate of 5% a year. What is the estimated required rate of return on Lane’s stock? Do not round intermediate calculations. Round your answer to two decimal places and express in percentage form.

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