Reference no: EM132786707

Question - Answer all questions and show all work, if applicable. Partial credit will not be provided without work, if work can be shown.

Q1. A $1,000 General Electric bond pays an annual coupon rate of 8%, has 9 years until maturity, and sells at a yield to maturity of 7%.

a) What interest payments will bondholders receive each year?

b) At what price does the bond sell if semi-annual interest payments are made?

c) What will happen to the bond price calculated in (b) if the yield-to-maturity falls to 6%?

Q2. What will be the monthly payment if you borrow a $100,000 15-year mortgage at an interest rate of 1% per month? How much of the first monthly payment is interest? In the first month, how much is principal amortization?

Q3. The S&P 500 and Mutual Fund A have the following probability distributions:

Probability Rate of Return (S&P 500) Rate of Return (Mutual Fund A)

30%

15%

20%

40%

9%

5%

30%

18%

12%

a) Calculate the expected rates of return for the S&P 500 and Mutual Fund A.

b) Calculate the standard deviations for the S&P 500 and Mutual Fund A.

c) Calculate the Coefficient of Variation for the S&P 500 and Mutual Fund A.

d) Which has more risk, the S&P 500 or Mutual Fund A, and explain your answer?