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Looking for the answer for this test prep question:
Seven years ago you bought a $600,000, 15-year, deep discount bond with a market interest rate of 5.90%. Since then market rates have fallen to 5.15% and you find that you must sell the bond.
a. What was the initial price of the bond?
b. What is the current price of the bond?
c. Calculate the current annual rate of return on this instrument and compare it to the annual rate of return you were expecting.
d. Explain whether your return would have been relatively greater or less if you held originally purchased a 25-year instrument.
Suppose the forward rate satisfies f(0, T1, T2) > [B(0,T1) / B(0,T2)] - 1. Write down, showing all details, an arbitrage strategy that yields a risk-less profit of (1 + f(0, T1, T2)) - B(0,T1) / B(0,T2) dollars.
Which of the following statements about bond pricing is correct?
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A share of common stock has just paida dividend of $2.50 (D0). If the expected long run growth rate for this stock is 4 percent per year, and if investors require a 12 percent rate of return, what is the price of the stock?
To celebrate your nephew's first birthday, you are considering buying him a bond or depositing money in a savings account. If you ignore tax and other fee implications, which of the following options is the MOST generous gift in terms of the future v..
Todd's Turtles is expected to increase dividends by 25% in one year, 10% in 2 year, and 15% in year 3. After that, dividends will increase at a rate of 4% per year indefinitely. The most recently paid dividend was $2, the requred return is 15%. What ..
Johnson Products earned $3.10 per share last year and it paid out $.75 dividend. The company’s ROE is 16%. Calculate the dividend payout ratio; Calculate the sustainable growth rate of the company.
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