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Exactly three years ago, you purchased a $1,000 face value bond for $1,211.16. The coupon rate was 6.5 percent with interest paid semiannually. Today, you sold that bond for $1,089.54. What was your rate of return for the 3-year period, or holding period yield, on this investment?

You have an option to buy Jack Clothing Corporation stocks. Based on the released financial statements, they have $500 million of debt and 14 million shares of stock outstanding. You expect the Corporation to generate the following cash flows over the next five years

Year                     1                 2                 3                 4                 5

FCF($millions)     75               84               96               111             120

Beginning with year six, you estimate that the Corporation's free cash flows will grow at 6% per year and that their weighted average cost of capital is 15%.

Would you be willing to buy a share at the price $39? And why or why not?

 

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