Chapter 4: The Value of Long term Securities
1 ) What is the industry value of the $1, 000 face-value relationship with a 10 percent coupon level when the market's rate of return is 9 percent? Answer: A lot more than its confront value.
2 . If an investor may have to sell a bond ahead of maturity and interest rates have got risen because the bond was purchased, the investor is usually exposed to __________. Answer: rate of interest risk
a few. Beta Finances Brooms can pay a big $2 dividend the coming year on the common stock, which is presently selling by $50 every share. What is the market's required go back on this purchase if the gross is supposed to grow for 5% forever? Answer: 9%
4. If the coupon connection sells at a large price cut from equiparable, then which in turn of the subsequent relationships holds true? (P0 > represents the buying price of a connection and YTM is the bond's yield to maturity. ) Answer: P0 < par and YTM > the coupon price.
5. Market interest rates as well as the prices of bonds inside the secondary industry: Answer: generally move in contrary directions.
6th. A $250 face worth share of preferred share pays a $20 annual dividend and investors require a 7% return on this expense. If the reliability is currently selling for $276, what is the difference (overvaluation) between its intrinsic and their market value (rounded for the nearest whole dollar)? Solution: Approximately $10.
six. Which from the following accurately describes the behaviour of connection prices? Answer: If interest levels rise so that the market needed rate of return improves, the bond's price is going to fall.
Chapter 5: Risk and Return
8. The firm of Sun and Moon acquired a talk about of Extreme. com prevalent stock precisely one year back for $45. During the past season the common stock paid a dividend of $2. 40. The organization sold the safety today for $85. What is the rate of return the firm has earned? Solution: 94. 2%. Return is now over the two-year period and includes equally dividends and capital profits. Return sama dengan [($2. 40) + ($85 -- $45)] /...