Jackson Corporation’s bonds have

Question#5-1

Jackson Corporation’s bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 8%. The bonds have a yield to maturity of 9%. What is the current market price of these bonds?

Question#5-2

Yield to Maturity for Annual payments

Wilson Wonders’s bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 10%. The bonds sell at a price of $850. What is their yield to maturity?

Question#5-6 

Maturity Risk Premium

The real risk-free rate is 3%, and inflation is expected to be 3% for the next 2 years. A 2-year Treasury security yields 6.3%. What is the maturity risk premium for the 2-year security?

Question#5-7

Bond Valuation with Semiannual payments

Renfro Rentals has issued bonds that have a 10% coupon rate, payable semiannually. The bonds mature in 8 years, have a face value of $1,000, and a yield to maturity of 8.5%. What is the price of the bonds?

Question# 5-13

Yield to Maturity and Current Yield

You just purchased a bond that matures in 5 years. The bond has a face value of $1,000 and has an 8% annual coupon. The bond has a current yield of 8.21%. What is the bond’s yield to maturity?

Question#6-1) ( Problem)

Portfolio Beta

An individual has $35,000 invested in a stock with a beta of 0.8 and another $40,000 invested in a stock with a beta of 1.4. If these are the only two investments in her portfolio, what is her portfolio’s beta?

Question# (6-2)

Required Rate of Return

Assume that the risk-free rate is 6% and that the expected return on the market is 13%. What is the required rate of return on a stock that has a beta of 0.7?

Question#(6-7)

Required Rate of Return

Suppose r_RF = 9%, r_M = 14%, and b_i = 1.3.

·         a. What is r_i, the required rate of return on Stock i?

·         b. Now suppose r_RF (1) increases to 10% or (2) decreases to 8%. The slope of the SML remains constant. How would this affect r_M and r_i?

·         c. Now assume r_RF remains at 9% but r_M (1) increases to 16% or (2) falls to 13%. The slope of the SML does not remain constant. How would these changes affect r_i?