Professor Jerry Langham
MBA 554: 262
27 January 2009
Section 5: Complications 1, a couple of, 3, some, 7, 12, & 25
1 . Bond Yields. A 30-year Treasury bond is issued with face benefit of $1, 000, paying interest of $60 each year. If industry yields enhance shortly after the T-bond is issued, how it changes the bond's a. promotion rate? The fixed charge is 6% and will not really change the $60 per year. n. price? Cost is dependent upon the market interest rate. In the event the market interest goes up, the bond price goes down; in case the interest rate decreases, the price of the bond must increase. c. yield to maturity? In the event the market produce increases, the yield to maturity raises, and vice versa. d. current yield? Current rate = coupon level Г· bond price. Since the relationship price alterations the current produce will too. If the bond price is decrease, the current yield will be bigger and vice versa. 2 . Connect Yields. When a bond with face value of $1, 000 and a discount rate of 8 percent is providing at a price of $970, is the bond's yield to maturity basically than eight percent? Think about the current produce?
Because the relationship is reduced, the produce to maturity must be a lot more than 8%, therefore the yield to maturity is usually greater than the coupon rate.
Current produce = coupon payment Г· bond cost
Coupon payment = 1000 dollar *. '08 = $80
CY = 80Г· 970 = 8. 247 which can be greater than 8%.
3. Connect Yields. A bond with face worth $1, 1000 has a current yield of seven percent and a coupon rate of 8 percent. What is the bond's value?
If times = the bond selling price
. 07 = 80/x
x= 80/. 07 = $1, 142. eighty six
4. Connection Pricing. A 6-year Circular File bond pays fascination of $80 annually and sells intended for $950. Exactly what are its promotion rate, current yield, and yield to maturity?
Voucher rate = 80/1000 sama dengan 8%
Current yield sama dengan 80 Г· 950 sama dengan 8. 42%
Yield to maturity =
950 sama dengan 80 2. ((1/r)- (1/(r*(1+r)^6)))+ (1000/(1+r)^6)
In calcвЂ¦N = 6, PV = -950, PMT sama dengan 80, FV = 1000
= on the lookout for. 119%
several. Coupon Price. General Matter's outstanding relationship issue provides a coupon rate of 10 percent and an up-to-date yield of 9. 6 percent, and it provides at a yield to maturity of 9. 25 percent. The company wishes to issue additional bonds to the public in face value. What discount rate must the new a genuine offer to be able to sell for face benefit? The produce to maturity = discount rate, so the new relationship needs to be on the lookout for. 25 to market at confront value. 12. Bond Costs. A 30-year maturity connect with encounter value of $1, 000 makes twelve-monthly coupon repayments and has a coupon rate of eight percent. Precisely what is the bond's yield to maturity if the bond is definitely selling for 1 . $900? N=30, FV=1000, PMT sama dengan 80, PHOTO VOLTAIC = -900 ( I/YR = almost eight. 9708% installment payments on your $1, 000? N=30, FV=1000, PMT = 80, PV = -1000 ( I/YR = 8% 3. $1, 100? N=30, FV=1000, PMT = 80, PV sama dengan -11000 ( I/YR = 7. 1796% 25. True Returns. Suppose that you buy a 1-year maturity bond pertaining to $1, 000 that will pay out back $1, 000 and also a coupon payment of $60 at the end in the year. What real price of come back will you gain if the inflation rate can be 1 . two percent? (1. 06/1. 02) вЂ“ 1 = zero. 039215686 sama dengan 3. 92%
2 . four percent? (1. 06/1. 04) вЂ“ 1 = zero. 019230769 sama dengan 1 . 92%
3. 6th percent? (1. 06/1. 06) вЂ“ 1 = 1%
4. 8 percent? (1. 06/1. 08) вЂ“ you = -0. 018518519 = -1. 85%
Chapter six: Problems 1, 2, three or more, 4, 13, 17, nineteen and 32
1 . Dividend Discount Unit. Amazon. com has never paid out a dividend, but in Summer 2005 the industry value of its stock was $13 billion. Does this invalidate the dividend low cost model? No .
2 . Gross Yield. Popular stock are going to pay a gross this year of $2. forty five per share. Its dividend yield can be 8 percent. At what price is the stock selling? Dividend yield = Dividend Г· Price
8% = installment payments on your 4/p
p=2. 4/. 08 = 31
The price of the stock can be $30.
3. Preferred Inventory. Preferred Goods has granted preferred stock with an $8 annual dividend that will be paid in perpetuity. If the discount price is 12 percent, for what price should the preferred sell? Price sama dengan Dividend Г· rate
P = $8/. 12
L = $66. 67
In what price should the stock sell off 1 year...