A finished FIN-350 Topic 4 bond and share pricing example, pricing a bond at two market rates and valuing a share from next year's dividend under three growth assumptions. Searches like "fin 350 topic 4 assignment example", "fin350 topic 4 sample" and "fin-350 topic 4 example" land here.
What a finished FIN-350 Topic 4 bond and share pricing looks like
The finished example works with labeled illustrative securities. A 1,000 bond paying a 6 percent annual coupon for ten years is priced at an 8 percent market rate, giving about 865.80, and at 5 percent, giving about 1,077.22. One year later, with nine years left and the market rate still at 8, the price rises to about 875.06, and the example traces that drift toward face value to the shortening wait for repayment. The share carries a dividend of 2.00 just paid, growth of 5 percent and a required return of 11 percent. Next year's dividend of 2.10 drives a value of 35.00. Growth of 5.5 percent raises it to about 38.36, and 4.5 percent lowers it to about 32.15.
How a FIN-350 Topic 4 example is structured
The example prices two securities and then tests each against the dates of its cash flows. It opens by listing every promised payment on the bond, coupon by coupon, with the face amount at maturity. A pricing section discounts them at 8 percent and again at 5 percent, reporting both prices and the yield each implies. A passage on price over time recomputes the bond one year on and explains why it converges on 1,000. The share section begins by separating the dividend already paid, which belonged to the previous owner, from the dividend expected next. The constant growth model is applied with next year's dividend in the numerator. A sensitivity paragraph reruns the share at two further growth rates. The final section sets out the condition the growth model needs, growth below the required return, and what happens to the value as the two converge.
Every bond payment listed first
Ten coupons and the face repayment are set out with their dates, so each discounted amount inside the price can be traced to one promise.
Price drifting toward face value
The same bond repriced a year later sits closer to 1,000, because the gap between its coupon and the market rate has fewer years left to matter.
Paid dividend separated from expected
The 2.00 already distributed went to the previous holder, so the value rests on the 2.10 due next year and every dividend after it.
Growth tested half a point each way
Moving growth to 5.5 and 4.5 percent shifts the share from 35.00 to about 38.36 and 32.15, which shows how exposed the estimate is.
The growth model's boundary stated
The constant growth formula breaks down as growth nears the required return, and the example states that limit instead of applying the model past it.
Where marks go in FIN-350 Topic 4
Placing the just-paid dividend in the numerator of the growth model is marked wrong outright, since it values the share on cash the new owner will never receive and understates the price, here 33.33 instead of 35.00. Bringing the 1,000 principal back over the wrong number of years, or leaving it out, produces a bond price that cannot be reconciled with the yield. Semiannual bonds priced with annual periods mistime every coupon. A share value reported without testing the growth rate implies a precision the input cannot support. Applying the growth model where growth is close to or above the required return produces a meaningless or negative figure that some papers report anyway. Prices stated without saying whether the security looks worth buying at a quoted market price leave the valuation without a use.
Get a FIN-350 Topic 4 example written to your instructions
Send the FIN-350 Topic 4 problems and the rubric your classroom provides, with the securities or data your section assigned. We write a custom example to them, with every bond payment dated, prices computed at each market rate, the paid dividend kept out of the share value and growth tested in both directions, in 24 to 48 hours. The first one is free.
FIN-350 Topic 4 questions, answered
Why does a discount bond's price rise over time?
Because the face value is repaid at maturity regardless, and the shortfall in its coupon has fewer years left to cost the holder. In the example, a bond priced at about 865.80 with ten years left is worth about 875.06 with nine left at the same market rate. At maturity the price reaches 1,000, which is why bonds are said to pull toward par.
Why use next year's dividend and not the last one?
Because a buyer today receives only future dividends. The one just paid has already gone to the previous owner, so it is not part of what the buyer is purchasing. The growth model therefore takes the expected next dividend, which is the last one grown by one year. Using the paid dividend understates the value every time it is done.
When does the constant growth model stop working?
When growth is close to or above the required return. The model divides next year's dividend by the gap between the two, so as that gap shrinks the value explodes, and if growth exceeds the return the formula produces a negative price. Firms growing that quickly need a model with a high-growth stage followed by a sustainable long-run rate.