Login

Contact Us
Homework
Homework Questions? Ask a Tutor for Answers ASAP
Not a Homework Question?
How JustAnswer Works:
Ask an Expert
Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
Get a Professional Answer
Via email, text message, or notification as you wait on our site.
Ask follow up questions if you need to.
100% Satisfaction Guarantee
Rate the answer you receive.
Ask vinsu Your Own Question
vinsu
,
Tutor
Category:
Homework
Satisfied Customers:
522
Experience:
MBA in Finance and Marketing
187364
Type Your Homework Question Here...
vinsu is online now
A1. (Bond valuation) A $1,000 face value bond has a remaining
Resolved Question:
A1. (Bond valuation) A $1,000 face value bond has a remaining maturity of 10 years and a
required return of 9%. The bond’s coupon rate is 7.4%. What is the fair value of this bond?The Price of the Bond is equal to the sum of the present values of all future cash flows (PV of coupon payments + PV of the Face Amount). Coupon Payment = $1,000 × 3.7% = $37. Number of periods = 10 years × 2 = 20 periods
Price =
= $481.29 + $414.64= $895.94
A10. (Dividend discount model) Assume RHM is expected to pay a total cash dividend of $5.60 next year and its dividends are expected to grow at a rate of 6% per year forever. Assuming annual dividend payments, what is the current market value of a share of RHM stock if the required return on RHM common stock is 10%?
P0 = D1 / (r  g) = $5.60 / (0.10  0.06) = $140.00
A12. (Required return for a preferred stock) James River $3.38 preferred is selling for $45.25. The preferred dividend is nongrowing. What is the required return on James River preferred stock?
PVPerpetuity = D / r = D / PV = $3.38 / $45.25 = 7.47%
A14. (Stock valuation) Suppose Toyota has nonmaturing (perpetual) preferred stock outstanding that pays a $1.00 quarterly dividend and has a required return of 12% APR (3% per quarter). What is the stock worth?
PVPerpetuity = D / r = $1.00 / 0.03 = $33.33
A16. (Growth rate) Suppose Toshiba has a payout ratio of 55% and an expected return on its future investments of 15%. What is Toshiba’s expected growth rate?
A. 1. CALC: n = 1 x 2 = 2 r = 8% / 2 = 4% PV = ? PMT = 9.125% x 1,000 / 2 = $45.625 FV = $1,000
PV = $1,010.61
2. CALC: n = 7 x 2 = 14 r = 8% / 2 = 4% PV = ? PMT = 9.125% x 1,000 / 2 = $45.625 FV = $1,000
PV = $1,059.42
3. CALC: n = 15 x 2 = 30 r = 8% / 2 = 4% PV = ? PMT = 9.125% x 1,000 / 2 = $45.625 FV = $1,000
PV = $1,097.27
B. 1. CALC: n = 1 x 2 = 2 r = 7% / 2 = 3.5% PV = ? PMT = 9.125% x 1,000 / 2 = $45.625 FV = $1,000
PV = $1,020.18
2. CALC: n = 7 x 2 = 14 r = 7% / 2 = 3.5% PV = ? PMT = 9.125% x 1,000 / 2 = $45.625 FV = $1,000
PV = $1,116.03
3. CALC: n = 15 x 2 = 30 r = 7% / 2 = 3.5% PV = ? PMT = 9.125% x 1,000 / 2 = $45.625 FV = $1,000
PV = $1,195.42
C. 1. CALC: n = 1 x 2 = 2 r = 9% / 2 = 4.5% PV = ? PMT = 9.125% x 1,000 / 2 = $45.625 FV = $1,000
PV = $1,001.17
2. CALC: n = 7 x 2 = 14 r = 9% / 2 = 4.5% PV = ? PMT = 9.125% x 1,000 / 2 = $45.625 FV = $1,000
PV = $1,006.39
3. CALC: n = 15 x 2 = 30 r = 9% / 2 = 4.5% PV = ? PMT = 9.125% x 1,000 / 2 = $45.625 FV = $1,000
PV = $1,010.18
D. Interestrate risk varies directly with maturity. The longer maturity of bonds, the larger the price change is when interest rates change.
B18. (Default risk) You buy a very risky bond that promises a 9.5% coupon and return of the
$1,000 principal in 10 years. You pay only $500 for the bond.
a. You receive the coupon payments for three years and the bond defaults. After liquidating
the firm, the bondholders receive a distribution of $150 per bond at the end of 3.5 years. What is the realized return on your investment?
b. The firm does far better than expected and bondholders receive all of the promised interest and principal payments. What is the realized return on your investment?
A. CALC: n = 3.5x2 =7 r = ? PV = $500 PMT = 9.5%x1,000/ 2= $47.50
FV = $150  47.50 = $102.50
r = 2.8746%
APY = (1 + r)m – 1 = (1  0.0278)2 – 1 = 5.6666%
YTM = 2x(2.8746) = 5.7493% APR
B. CALC: n = 10x2 =20 r = ? PV = $500 PMT = 9.5%x1,000/2 = $47.50
FV = $1,000
r = 11.0489%
APY = (1 + r)m – 1 = (1 + 0.110489)2 – 1 = 23.3185%
YTM = 2x11.0489 = 22.0977% APR
B20. (Constant growth model) Medtrans is a profitable firm that is not paying a dividend on itscommon stock. James Weber, an analyst for A. G. Edwards, believes that Medtrans will
begin paying a $1.00 per share dividend in two years and that the dividend will increase
6% annually thereafter. Bret Kimes, one of James’ colleagues at the same firm, is less optimistic.
Bret thinks that Medtrans will begin paying a dividend in four years that the dividend will be $1.00, and that it will grow at 4% annually. James and Bret agree that the required return for Medtrans is 13%.
a. What value would James estimate for this firm?
b. What value would Bret assign to the Medtrans stock?
a. P1 = D2 / (r  g) = $1.00 / (0.13  0.06) = $14.29
P0 = $14.29 / (1 + 0.13)1 = $12.64
b. P3 = D4 / (r  g) = $1.00 / (0.13  0.04) = $11.11
P0 = $11.11 / (1 + 0.13)3 = $7.70
¦ LEVEL C (ADVANCED)
C1. (Beta and required return) The riskless return is currently 6%, and Chicago Gear has estimated the contingent returns given here.
a. Calculate the expected returns on the stock market and on Chicago Gear stock.
b. What is Chicago Gear’s beta?
c. What is Chicago Gear’s required return according to the CAPM?
REALIZED RETURN
State of the Market Probability that State Occurs Stock Market Chicago Gear
Stagnant 0.20 (10%) (15%)
Slow growth 0.35 10 15
Average growth 0.30 15 25
Rapid growth 0.15 25 35
A. Expected Return M = 0.20 x .10% + 0.35 x 10% + 0.30 x 15% + 0.15 x 25% =
9.75%
Expected Return Chicago Gear = 0.20 x .15% + 0.35 x 15% + 0.30 x 25% + 0.15 x
35% = 15.00%
B. sM2 = 0.20(0.10  0.0975)2 + 0.35(0.10  0.0975)2 + 0.30(0.15  0.0975)2 + 0.15(0.25
 0.0975)2 = 0.0121
Cov(Chicago Gear, M) = 0.20(0.15  0.15)(0.10  0.0975) + 0.35(0.15  0.15)(0.10 –
0.0975) + 0.30(0.25  0.15)(0.15  0.0975) + 0.15(0.35  0.15)(0.25  0.0975) = 0.018
ß = Cov(j,M) / sM2 = 0.018 / 0.0121 = 1.49
C. r = rf + ß(rM  rf) = 0.06 + 1.49(0.0975  0.06) = 0.1159 = 11.59%
Submitted:
6 years ago.
Category:
Homework
Share this conversation
Expert:
vinsu
replied 6 years ago.
Can you provide the answers in a file. It is difficult to understand
Ask Your Own Homework Question
Customer:
replied 6 years ago.
Ch. 5: Problems A1, A10, A12, A14, B16, B18, & B20 (pp. 134137)
Ch. 7: Problem C1 (p. 184)
A1. (Bond valuation) A $1,000 face value bond has a remaining maturity of 10 years and a
required return of 9%. The bond's coupon rate is 7.4%. What is the fair value of this bond?
The Price of the Bond is equal to the sum of the present values of all future cash flows (PV of coupon payments + PV of the Face Amount). Coupon Payment = $1,000 × 3.7% = $37. Number of periods = 10 years × 2 = 20 periods
Price =
= $481.29 + $414.64= $895.94
A10. (Dividend discount model) Assume RHM is expected to pay a total cash dividend of $5.60 next year and its dividends are expected to grow at a rate of 6% per year forever. Assuming annual dividend payments, what is the current market value of a share of RHM stock if the required return on RHM common stock is 10%?
P
_{0}
= D
_{1}
/ (r  g) = $5.60 / (0.10  0.06) = $140.00
A12. (Required return for a preferred stock) James River $3.38 preferred is selling for $45.25. The preferred dividend is nongrowing. What is the required return on James River preferred stock?
PV
_{Perpetuity}
= D / r = D / PV = $3.38 / $45.25 = 7.47%
A14. (Stock valuation) Suppose Toyota has nonmaturing (perpetual) preferred stock outstanding that pays a $1.00 quarterly dividend and has a required return of 12% APR (3% per quarter). What is the stock worth?
PV
_{Perpetuity}
= D / r = $1.00 / 0.03 = $33.33
A16. (Growth rate) Suppose Toshiba has a payout ratio of 55% and an expected return on its future investments of 15%. What is Toshiba's expected growth rate?
A. 1. CALC: n = 1 x 2 = 2 r = 8% / 2 = 4% PV = ? PMT = 9.125% x 1,000 / 2 = $45.625 FV = $1,000
PV = $1,010.61
2. CALC: n = 7 x 2 = 14 r = 8% / 2 = 4% PV = ? PMT = 9.125% x 1,000 / 2 = $45.625 FV = $1,000
PV = $1,059.42
3.
CALC
: n = 15 x 2 = 30 r = 8% / 2 = 4% PV = ? PMT = 9.125% x 1,000 / 2 = $45.625 FV = $1,000
PV = $1,097.27
B. 1. CALC: n = 1 x 2 = 2 r = 7% / 2 = 3.5% PV = ? PMT = 9.125% x 1,000 / 2 = $45.625 FV = $1,000
PV = $1,020.18
2. CALC: n = 7 x 2 = 14 r = 7% / 2 = 3.5% PV = ? PMT = 9.125% x 1,000 / 2 = $45.625 FV = $1,000
PV = $1,116.03
3.
CALC
: n = 15 x 2 = 30 r = 7% / 2 = 3.5% PV = ? PMT = 9.125% x 1,000 / 2 = $45.625 FV = $1,000
PV = $1,195.42
C. 1. CALC: n = 1 x 2 = 2 r = 9% / 2 = 4.5% PV = ? PMT = 9.125% x 1,000 / 2 = $45.625 FV = $1,000
PV = $1,001.17
2. CALC: n = 7 x 2 = 14 r = 9% / 2 = 4.5% PV = ? PMT = 9.125% x 1,000 / 2 = $45.625 FV = $1,000
PV = $1,006.39
3.
CALC
: n = 15 x 2 = 30 r = 9% / 2 = 4.5% PV = ? PMT = 9.125% x 1,000 / 2 = $45.625 FV = $1,000
PV = $1,010.18
D. Interestrate risk varies directly with maturity. The longer maturity of
bonds, the larger the price change is when interest rates change.
B18. (Default risk) You buy a very risky bond that promises a 9.5% coupon and return of the
$1,000 principal in 10 years. You pay only $500 for the bond.
a. You receive the coupon payments for three years and the bond defaults. After liquidating
the firm, the bondholders receive a distribution of $150 per bond at the end of 3.5 years. What is the realized return on your investment?
b. The firm does far better than expected and bondholders receive all of the promised interest and principal payments. What is the realized return on your investment?
A. CALC: n = 3.5x2 =7 r = ? PV = $500 PMT = 9.5%x1,000/ 2= $47.50
FV = $150  47.50 = $102.50
r = 2.8746%
APY = (1 + r)
^{m}
 1 = (1  0.0278)
^{2}
 1 = 5.6666%
YTM = 2x(2.8746) = 5.7493% APR
B. CALC: n = 10x2 =20 r = ? PV = $500 PMT = 9.5%x1,000/2 = $47.50
FV = $1,000
r = 11.0489%
APY = (1 + r)
^{m}
 1 = (1 + 0.110489)
^{2}
 1 = 23.3185%
YTM = 2x11.0489 = 22.0977% APR
B20. (Constant growth model) Medtrans is a profitable firm that is not paying a dividend on itscommon stock. James Weber, an analyst for A. G. Edwards, believes that Medtrans will
begin paying a $1.00 per share dividend in two years and that the dividend will increase
6% annually thereafter. Bret Kimes, one of James' colleagues at the same firm, is less optimistic.
Bret thinks that Medtrans will begin paying a dividend in four years that the dividend will be $1.00, and that it will grow at 4% annually. James and Bret agree that the required return for Medtrans is 13%.
a. What value would James estimate for this firm?
b. What value would Bret assign to the Medtrans stock?
a. P
_{1 }
= D
_{2}
/ (r  g) = $1.00 / (0.13  0.06) = $14.29
P
_{0}
= $14.29 / (1 + 0.13)
^{1}
= $12.64
b. P
_{3 }
= D
_{4}
/ (r  g) = $1.00 / (0.13  0.04) = $11.11
P
_{0}
= $11.11 / (1 + 0.13)
^{3}
= $7.7
¦
LEVEL C (ADVANCED)
C1. (Beta and required return) The riskless return is currently 6%, and Chicago Gear has estimated the contingent returns given here.
a. Calculate the expected returns on the stock market and on Chicago Gear stock.
b. What is Chicago Gear's beta?
c. What is Chicago Gear's required return according to the CAPM?
REALIZED RETURN
State of the Market Probability that State Occurs Stock Market Chicago Gear
Stagnant 0.20 (10%) (15%)
Slow growth 0.35 10 15
Average growth 0.30 15 25
Rapid growth 0.15 25 35
A. Expected Return M = 0.20 x .10% + 0.35 x 10% + 0.30 x 15% + 0.15 x 25% =
9.75%
Expected Return Chicago Gear = 0.20 x .15% + 0.35 x 15% + 0.30 x 25% + 0.15 x
35% = 15.00%
B. σ
_{M}
^{2}
= 0.20(0.10  0.0975)
^{2}
+ 0.35(0.10  0.0975)
^{2}
+ 0.30(0.15  0.0975)
^{2}
+ 0.15(0.25
 0.0975)
^{2}
= 0.0121
Cov(Chicago Gear, M) = 0.20(0.15  0.15)(0.10  0.0975) + 0.35(0.15  0.15)(0.10 
0.0975) + 0.30(0.25  0.15)(0.15  0.0975) + 0.15(0.35  0.15)(0.25  0.0975) = 0.018
β = Cov(j,M) / σ
_{M}
^{2}
= 0.018 / 0.0121 = 1.49
^{ }
C. r = r
_{f}
+ β(r
_{M}
 r
_{f}
) = 0.06 + 1.49(0.0975  0.06) = 0.1159 = 11.59%
Expert:
vinsu
replied 6 years ago.
THIS ANSWER IS LOCKED!
You need to spend $3 to view this post.
Add Funds
to your account and buy credits.
vinsu, Tutor
Category:
Homework
Satisfied Customers:
522
Experience:
MBA in Finance and Marketing
vinsu and 2 other Homework Specialists are ready to help you
Ask your own question now
Share this conversation
JustAnswer in the News:
Askadoc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses workfromhome jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
What Customers are Saying:
Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.
Mary C.
Freshfield, Liverpool, UK
<
Previous

Next
>
Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.
Mary C.
Freshfield, Liverpool, UK
This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!
Alex
Los Angeles, CA
Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.
GP
Hesperia, CA
I couldn't be more satisfied! This is the site I will always come to when I need a second opinion.
Justin
Kernersville, NC
Just let me say that this encounter has been entirely professional and most helpful. I liked that I could ask additional questions and get answered in a very short turn around.
Esther
Woodstock, NY
Thank you so much for taking your time and knowledge to support my concerns. Not only did you answer my questions, you even took it a step further with replying with more pertinent information I needed to know.
Robin
Elkton, Maryland
He answered my question promptly and gave me accurate, detailed information. If all of your experts are half as good, you have a great thing going here.
Diane
Dallas, TX
Meet The Experts:
LogicPro
Engineer
Satisfied Customers:
4925
Expert in Java C++ C C# VB Javascript Design SQL HTML
<
Last

Next
>
http://ww2.justanswer.com/uploads/ComputersGuru/20100213_051118_Photo41.JPG
LogicPro's Avatar
LogicPro
Engineer
Satisfied Customers:
4925
Expert in Java C++ C C# VB Javascript Design SQL HTML
http://ww2.justanswer.com/uploads/BU/BusinessTutor/201222_115741_Kouki2.64x64.jpg
Manal Elkhoshkhany's Avatar
Manal Elkhoshkhany
Tutor
Satisfied Customers:
4538
More than 5000 online tutoring sessions.
http://ww2.justanswer.com/uploads/LI/lindaus/2012610_04811_IMG20120609164157.64x64.jpg
Linda_us's Avatar
Linda_us
Finance, Accounts & Homework Tutor
Satisfied Customers:
3138
Post Graduate Diploma in Management (MBA)
http://ww2.justanswer.com/uploads/chooser77/20090818_162025_Chris.jpg
Chris M.'s Avatar
Chris M.
M.S.W. Social Work
Satisfied Customers:
2602
Master's Degree, strong math and writing skills, experience in oneonone tutoring (college English)
http://ww2.justanswer.com/uploads/JawaadAhmed/2009627_12137_SIs_SHadi.jpg
F. Naz's Avatar
F. Naz
Chartered Accountant
Satisfied Customers:
2126
Experience with chartered accountancy
http://ww2.justanswer.com/uploads/JK/jkcpa/2011116_182614_jkcpa.64x64.jpg
Bizhelp's Avatar
Bizhelp
CPA
Satisfied Customers:
1887
Bachelors Degree and CPA with Accounting work experience
http://ww2.justanswer.com/uploads/avremote/photoa.jpg
Seanna's Avatar
Seanna
Tutor
Satisfied Customers:
1781
3,000+ satisfied customers, all topics, A+ work
Related Homework Questions
Question
Date Submitted
A $40,000, 15 percent, 180day note, dated July 8 is
6/26/2016
6/26/2016
F. Naz
I need help with Penn exam 061579 financial accounting the
6/22/2016
6/23/2016
Manal Elkhoshkhany
Choose Oracle datatypes following attributes from a
6/21/2016
6/21/2016
LogicPro
I have 10 questions on Economics
6/21/2016
6/21/2016
GLENN
I am having issues doing the right... I am having issues
6/21/2016
6/21/2016
Russell H.
Is there anyone who can help me with questions 13 of this
6/21/2016
6/25/2016
Raj
I need your help on this final assignment that you have been
6/19/2016
6/20/2016
LogicPro
I have been trying to figure out part II of Transforming and
6/19/2016
6/19/2016
GLENN
University of Phoenix Material UNIX® Commands Table
6/18/2016
6/18/2016
Russell H.
I have a two part assignment I need help with. Part 1: I
6/17/2016
6/17/2016
Mr. Gregory White
X
Ask a Tutor
Get a Professional Answer. 100% Satisfaction Guaranteed.
20 Tutors are Online Now
Type Your Homework Question Here...
characters left: