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BUSFIN 4220 Study Guide - Midterm Guide: Standard Deviation, Current Yield

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mauvepug886
30 Oct 2014
School
Ohio State University
Department
Business Admin : Finance
Course
BUSFIN 4220
Professor
All

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Document Summary

Today, isabella investor has purchased a 20 year bond paying a yearly coupon of 8%. Purchasers are demanding an annual return of 7. 35% on bonds of similar risk. Carr"s 4l ranch, inc. , will pay a dividend of . 80 in exactly one year. Carr pays dividends at 45% of eps, and its roe is 14%. 13% return, and carr invests all of the money it does not give out in dividends, and earns the company roe on those monies. Dividends will grow at the sustainable growth rate. What is the value of a share of carr stock: . 54, . 86, . 83, . 14. Static profits, inc. , will earn ,000 after tax each year forever. What is the company worth: ,000, ,000, ,000, ,000. Spartan sofas, inc. , has a beta of 1. 28. Short term t-bills are paying annual interest of 2. 23%, and the market return is 12. 07%. What is spartan"s required rate of return: 9. 84, 12. 07, 14. 30, 14. 83%

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Related Questions

25. Today (T=0), an investor purchased a 20 year bond with a5.00% coupon and a face value of $100,000 for $106,550. In sixmonths (T=0.5) interest rates have decreased by 0.50% and theinvestor decides to sell the bond immediately after receiving thefirst coupon payment. What is the investor’s total gain (loss) onthe bond? HINT: Total Gain (Loss) = Price Change in Bond +Coupon

  1. ($6,548)

  2. ($6,048)

  3. $7,130

  4. $7,602

  5. $7,630

Today (T=0), an investor purchased a 20 year bond with a 5.00%coupon and a face value of $100,000 for $106,550. In six months(T=0.5) interest rates have decreased by 0.50% and the investordecides to sell the bond immediately after receiving the firstcoupon payment. What is the investor’s total gain (loss) on thebond? HINT: Total Gain (Loss) = Price Change in Bond + Coupon

Bond Coupon Rate Maturity Year Par Value
1 7.5% 2032 1000
2 8.25% 2029 1000
3 6.0% 2023 1000

a.) Assuming that bonds pay annual coupon, estimate the marketvalue of each bond at a discount rate of 7.4%

b.) Assuming that bonds pay annual coupon, what will happen tothe price of each bond if market rates suddenly decrease from 7.4%to 6.2%? Which of the three bonds will have the greatest percentagechange in price?

c.) Assuming that bonds pay annual coupon, what will happen tothe price of each bond if market interest rates suddenly increasefrom 7.4% to 8.6%? Which of the three bonds will have the greatestpercentage change in price?

d.) Assuming that bonds pay annual coupon. Also, the bonds arecurrently trading in the market at $973.63, $932.37, and $1,075.58respectively. What is the yield-to-maturity of each bond?

e.) Assuming that bonds pay annual coupon. Suppose Rheapurchased bond 1 today at a price of $973.63, but would like tosell the bond in 7 years at which time similar bonds yield 6.753%.At what price can Rhea expect to sell the bonds? If she sells thebond in 7 years at the price computed, what would be her realizedrate of return over her holding period?

f.) Repeat analysis in parts a)-e) assuming bonds paysemi-annual coupon.