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?