Fin515 Week 3

In: Business and Management

Submitted By JLM404
Words 448
Pages 2
Problem 5-1
Current market price
Given:
Interest paid annually
$1,000 par value
12 years to maturity
Coupon rate of 8%
Yield to maturity of 9%

Using a financial calculator phone app
PMT=80
FV=1000
I=9%
N=12
Current market price=$928.39

Problem 5-2
Yield to Maturity
Given:
Interest paid annually
$1,000 par value
12 years to maturity
Coupon rate of 10%
Current price=$850

Using a financial calculator phone app
PV=-850
PMT=100
FV=1000
N=12
Yield to Maturity=12.48%

Problem 5-6
Market Risk Premium
Given:
Risk Free Rate=3%
Inflation=3% for two years
Current Yield=6.3%
Current Yield=rRF+IP+MRP
6.3%=3%+3%+MRP
MRP=.3%

Problem 5-7
Current Price of the Bond
Given:
Interest paid semiannually
$1,000 par value
8 years to maturity
Coupon rate of 10%
Yield to maturity of 8.5%

Using a financial calculator phone app
PMT=100
FV=1000
I=8.5%
N=8
Current market price=$1085.80

Problem 5-13
Yield to Maturity
Given:
5 years to maturity
Par value of $1000
Coupon Rate=8%
Current Yield=8.21%
Using Excel
=RATE(5,80,-974.42144,1000)
Yield to Maturity= 8.65%

Question 6-6
If a company’s beta were to double, would its expected return double?
No, the expected return will increase but since the beta is multiplied by the market risk premium it will not double as the beta does.

Problem 6-1
Portfolio Beta
Given:
$35,000 in stock1
Beta1=.8
$40,000 in stock2
Beta2=1.4
Portfolio beta= (.46667)(.8)+(.53333)(1.4)=1.12

Problem 6-2
Required Rate of Return
Given:
rRF=6% rm=13% beta=.7 ri=rRF+(RPM)(bi) ri=6%+(7%)(.7)=10.9%

Problem 6-7
a)Required Rate of Return
Given:
rRF=9% rm=14% beta=1.3 ri=rRF+(RPM)(bi) ri=9%+(5%)(1.3)=15.5%
b)
1)Required Rate of Return
Given:
rRF=10% beta=1.3 RPM=5% ri=rRF+(RPM)(bi) ri=10%+(5%)(1.3)=8%
Market Return
RPM=rRF-rm
5%=10%-rM rm=16% 2)Required Rate of Return…...

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