4. A firm’s bonds have Maturity of 10 years with a $1,000 face value, an 8 percent semiannual coupon, are callable in 5 years at $1,050 and currently sell at a price of $1,100. What are their yield to maturity and their yield to call? What return should investors expect to earn on this bond? Ans.
9. Heymann Company bonds have 4 years left to maturity. Interest is paid annually, and the bonds have a $1,000 par value and a coupon rate of 9%.
a. What is the yield to maturity at a current market price of (1) $829 or (2)$1,104?
b. Would you pay $829 for each bond if you thought that a “fair” market interest rate for such bonds was 12% i.e., if rd = 12%? Explain your answer.
16. Bond X is noncallable, has 20 years to maturity, a 9% annual coupon, and a $1,000 per value. Your required return on Bond X is 10%, and if you buy it you plain to hold it for 5 years. You and the market, have expectations that in 5years the yield to maturity on a 15-year bond with similar risk will be 8.5%. How much should you be willing to pay for Bond X today? Ans.
10 Bradford Manufacturing Company has a beta of 1.43, 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? Ans.
8.16 You have been managing a $5 million portfolio that has a beta of 1.25 and a required rate of 12%. The current risk-free rate is 5.25%. Assume that you receive another $500,000. If you invest the money in a stock with a beta of 0.75 what will be the required return on your portfolio? Ans.
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