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Homework answers / question archive / PROBLEM 1 6-Points (2-Points per question): Bond 1 has a coupon rate of 0

__PROBLEM 1__

6-Points (2-Points per question):

Bond 1 has a coupon rate of 0.0400, a face value of $10,000, for 20 years, pays dividends on a semi-annual basis, and a required yield (YTM) of 0.0350. What is the bonds valuation? What is the bond 1’s current yield? The bond will be called in 8 years, and have a call premium of $200. What is bond 1’s YTC (yield-to-call)? Remember to round to the nearest basis point. Note that one basis point is equal to 0.0001, which is 1/100^{th} of a percent. Remember that the bond pays coupons on a semi-annual basis.

6-Points (2-Points per question):

Bond 2 has a coupon rate of 0.0400, a face value of $10,000, for 20 years, pays dividends on a semi-annual basis, and a required yield (YTM) of 0.0400. What is the bonds valuation? What is the bond 2’s current yield? The bond will be called in 8 years, and have a call premium of $200. What is bond 1’s YTC (yield-to-call)? Remember to round to the nearest basis point. Note that one basis point is equal to 0.0001, which is 1/100^{th} of a percent. Remember that the bond pays coupons on a semi-annual basis.

6-Points (2-Points per question):

Bond 3 has a coupon rate of 0.0400, a face value of $10,000, for 20 years, pays dividends on a semi-annual basis, and a required yield (YTM) of 0.0450. What is the bonds valuation? What is the bond 3’s current yield? The bond will be called in 8 years, and have a call premium of $200. What is bond 3’s YTC (yield-to-call)? Remember to round to the nearest basis point. Note that one basis point is equal to 0.0001, which is 1/100^{th} of a percent. Remember that the bond pays coupons on a semi-annual basis.

Please ** show all** of your calculations in Excel. Answers without calculations will not earn credit.

4-Points:

Bond 4 has a coupon rate of 0.0400, a face value of $10,000, for 20 years, pays dividends on a semi-annual basis, and has a current value of $9,600. What is the bond’s YTM (yield-to-maturity)? Remember to round to the nearest basis point. Note that one basis point is equal to 0.0001, which is 1/100^{th} of a percent.

8-Points:

Please utilize the following link to research the 10-K report for Altria, which is ticker symbol “MO”.

http://investor.altria.com/phoenix.zhtml?c=80855&p=irol-sec&control_selectgroup=1

Open the 10-K file in a pdf. Note that the filing date was 2/25/16.

There are “Notes” to the financial statements, that are always provided after the financial statements section of the 10-K. Please review “Note 9: Long-Term Debt” on page 52 of the 2015 10-K. What was the “rd” cost of debt in a percentage format for 2015?

__PROBLEM 2__

Scenarios: Probabilities: Returns:

A 0.10 (0.10)

B 0.10 0.02

C 0.40 0.05

D 0.25 0.07

E 0.15 0.14

Problem 1: 5-Points: Calculate the expected return.

Problem 2: 5-Points: Calculate the standard deviation.

Problem 3: 4-Points: CAPM: If the risk-free rate is 0.02, the return of the market is 0.07, and the beta of the stock is 1.2, what is the return of the stock?

Problem 4: 4-Points: CAPM: If the risk-free rate is 0.02, the market risk premium is 0.07, and the beta of the stock is 1.2, what is the return of the stock?

Problem 5: 4-Points: CAPM: If the risk-free rate is 0.02, the return of the market is 0.07, and the beta of the stock is 1.2, what is the return of the stock?

Problem 6: 4-Points: CAPM: If the risk-free rate is 0.02, the return of the stock is 0.18, and the return of the market is 0.10, what is the beta of the stock?

Problem 7: 4-Points: CAPM: If the risk-free rate is 0.02, the return of the stock is 0.18, and the market-risk premium is 0.10, what is the beta of the stock?

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