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1. Assume that you are trying to choose which of 3 bonds to buy:
? A zero coupon bond
? A 5% coupon bond
? An 8% coupon bond
Each has a face value of $1,000. They all mature in 10 years, have the same default risk and pay any coupons annually. There are no other special provisions.
a. If the current market rate of interest is 4%, what are the prices of the three bonds?
b. If your holding period is one year only, what will be the holding period rate of return for each bond?
2. Suppose you are Investing money in an RESP (Registered Educational Savings Plan) to meet your child’s post-secondary schooling expenses. You expect you will have to pay out $20,000 per year for 4 years starting 9 years from now. We will just consider the first year’s obligation of $2,000. You have available the three bonds described in Question 2 above.
a. Calculate the current price and duration of each bond.
b. Calculate the shares of Bonds 1 and 3 in an optimal immunized portfolio.
The qualifier for a financial advisor would be ________.
You own 1,100 shares of stock in Avondale Corporation. You will receive a $2.60 per share dividend in one year. In two years, Avondale will pay a liquidating dividend of $75 per share. The required return on Avondale stock is 20 percent. Suppose you ..
Assume an interest rate Of 5% compounded annually and find the present value of the depreciation charges using:
Using ratio analysis, compare two major competitors in the same industry. - Pick any two U.S. public companies in the same industry.
Then answer the following questions. A loan of $1000 is to be repaid by annual payments of $100 to begin at the end of the year and continue thereafter for as long as necessary. Find the time and amount of the final payment, assuming that the final p..
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Consider a project to supply 60,800,000 postage stamps to the U.S. Postal Service for the next 5 years. You have an idle parcel of land available that cost $760,000 five years ago; if the land were sold today, it would net you $912,000, aftertax. You..
Consider a firm that had been priced using a 11.00 percent growth rate and a 15.00 percent required rate. The firm recently paid a $1.40 dividend.
Tin-Tin Waste Management, Inc., is growing rapidly. Dividends are expected to grow at rates of 30 percent, 35 percent, 25 percent, and 18 percent over the next four years. Thereafter, management expects dividends to grow at a constant rate of 7 perce..
Suppose your firm is considering two mutually exclusive, required projects with the cash flows shown below. The required rate of return on projects of both of their risk class is 12 percent, and that the maximum allowable payback and discounted payba..
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