1. Callaghan Motors’ bonds have 10 years remaining to maturity. Interest is paid annually, they have a $1,000 par value, the coupon interest rate is 8%, and the yield to maturity is 9%. What is the bond’s current market price?

2. An investor has two bonds in is portfolio that have a face value of $1,000 and pay a 10% annual coupon. Bond L matures in 15 years, while Bond S at its matures in 1 year.
a. What will the value of each bond be if the going interest rate is 5%, 8%, and 12%? Assume that only one more interest payment is to be made on Bond S at its maturity and that 15 more payments are to be made on Bond L.
b. Why does the longer-term bond’s price vary more than the price of the shorter-term bond when interest rates change?

3. An investor purchased the following 5 boneds. Each bond had a par value of $1,000 and an 8% yield to maturity on the purchased day. Immediately after the investor purchased them, interest rates fell and each then had a new YTM of 7%. What is the percentage change in price for each bond after the decline in interest rates? Fill in the following table:

4. Bradford Manufacturing Company has a beta of 1.45, while Farley Industries has a beta of 0.85. The required return on an index fund that holds the entire stock market is 12.0%. The risk-free rate of interest is 5%. By how much does Bradford’s required return exceed Farley’s required return?

5. Assume that the risk-free rate is 6% and the expected return on the market is 13%. What is the required rate of return on a stock with a beta of 0.7?

6. Assume that the risk-free rate is 5% and the market risk premium is 6%. What is the expected return for the overall stock market? What is the requir3d rate of return on a stock with a beta of 1.2?