| WEEK 5 HOMEWORK ASSIGNMENT- 240 |
| Problem P6-8 |
| A. | C. |
| Security | Inflation Expectation Premium | Real Rate of Interest | Risk Premium | Risk-Free Rate | Nominal Rate of Interest |
| A | 6% | 3% | 3% |
| B | 9% | 3% | 2% |
| C | 8% | 3% | 2% |
| D | 5% | 3% | 4% |
| E | 11% | 3% | 1% |
| Problem P6-9 |
| Characteristic | Security A | Security B |
| Time to maturity | 3 | 15 | years |
| Inflation Expectation Premium | 9% | 7% |
| Risk Premium for: |
| Liquidity Risk | 1% | 1% |
| Default Risk | 1% | 2% |
| Maturity Risk | 0.5% | 1.5% |
| Other Risk | 0.5% | 1.5% |
| Real Rate of Interest = | 2% | 2% |
| A. Risk Free Rate = |
| B. Total Risk Premium = |
| C. Nominal Rate of Interest = |
| Problem P6-16 |
| A. |
| Settlement | (Think of Settlement as the beginning of the duration of the bond) |
| Maturity | (Think of Maturity as the end of the duration of the bond) |
| Rate | (Coupon Rate) |
| YTM | (Yield to Maturity or Required Rate fo Return) |
| Redemption | (Bonds Face Value, Par Value, or Fair Price; Note that is is $100, not $1,000. You make the adjustments by multiplying the answer by 10.) |
| Frequency | (Coupon payments are semiannul, so you put in a 2. If they are annual, then you input a 1) |
| Basis | (Always leave it blank) |
| Bond Price: | (The answer. But you need to multiply it by 10 to get the actual bond price.) |
| Multiply by 10 | (Microsoft gives the bond price in 2 digits like in cell B111. You need to multiply it by 10 to get the actual bond price) |
| B. |
| Settlement | (Think of Settlement as the beginning of the duration of the bond) |
| Maturity | (Think of Maturity as the end of the duration of the bond) |
| Rate | (Coupon Rate) |
| YTM | (Yield to Maturity or Required Rate fo Return) |
| Redemption | (Bonds Face Value, Par Value, or Fair Price; Note that is is $100, not $1,000. You make the adjustments by multiplying the answer by 10.) |
| Frequency | (Coupon payments are semiannul, so you put in a 2. If they are annual, then you input a 1) |
| Basis | (Always leave it blank) |
| Bond Price: | (The answer. But you need to multiply it by 10 to get the actual bond price.) |
| Multiply by 10 | (Microsoft gives the bond price in 2 digits like in cell B111. You need to multiply it by 10 to get the actual bond price) |
| C. |
| Settlement | (Think of Settlement as the beginning of the duration of the bond) |
| Maturity | (Think of Maturity as the end of the duration of the bond) |
| Rate | (Coupon Rate) |
| YTM | (Yield to Maturity or Required Rate fo Return) |
| Redemption | (Bonds Face Value, Par Value, or Fair Price; Note that is is $100, not $1,000. You make the adjustments by multiplying the answer by 10.) |
| Frequency | (Coupon payments are semiannul, so you put in a 2. If they are annual, then you input a 1) |
| Basis | (Always leave it blank) |
| Bond Price: | (Note: You will not multiply by 10 since the par value is $100) |
| Multiply by 10 |
| D. |
| Settlement | (Think of Settlement as the beginning of the duration of the bond) |
| Maturity | (Think of Maturity as the end of the duration of the bond) |
| Rate | (Coupon Rate) |
| YTM | (Yield to Maturity or Required Rate fo Return) |
| Redemption | (Bonds Face Value, Par Value, or Fair Price; Note that is is $100, not $1,000. You make the adjustments by multiplying the answer by 10.) |
| Frequency | (Coupon payments are semiannul, so you put in a 2. If they are annual, then you input a 1) |
| Basis | (Always leave it blank) |
| Bond Price: | (The answer. But you need to multiply it by 10 to get the actual bond price.) |
| Multiply by 10 | (Note: You will only multiply by 5 since the par value is $500) |
| E. |
| Settlement | (Think of Settlement as the beginning of the duration of the bond) |
| Maturity | (Think of Maturity as the end of the duration of the bond) |
| Rate | (Coupon Rate) |
| YTM | (Yield to Maturity or Required Rate fo Return) |
| Redemption | (Bonds Face Value, Par Value, or Fair Price; Note that is is $100, not $1,000. You make the adjustments by multiplying the answer by 10.) |
| Frequency | (Coupon payments are semiannul, so you put in a 2. If they are annual, then you input a 1) |
| Basis | (Always leave it blank) |
| Bond Price: | (The answer. But you need to multiply it by 10 to get the actual bond price.) |
| Multiply by 10 | (Microsoft gives the bond price in 2 digits like in cell B111. You need to multiply it by 10 to get the actual bond price) |
| Problem P6-21a |
| Settlement | (Think of Settlement as the beginning of the duration of the bond) |
| Maturity | (Think of Maturity as the end of the duration of the bond) |
| Rate | (Coupon Rate) |
| Pr | (The bonds price per $100 face value) |
| Redemption | (Bonds Face Value, Par Value, or Fair Price; Note that is is $100, not $1,000.) |
| Frequency | (Coupon payments are semiannul, so you put in a 2. If they are annual, then you input a 1) |
| Basis: | (Always leave it blank) |
| Yield to Maturity: |
| Problem 7-8 |
| Firm | Expected Dividend | Dividend Growth Rate | Required Return | Value of Firm |
| A | $1.20 | 8% | 13% |
| B | $4.00 | 5% | 15% |
| C | $0.65 | 10% | 14% |
| D | $6.00 | 8% | 9% |
| E | $2.25 | 8% | 20% |
| Problem 7-20 |
| Proposal | Expected Dividend | Dividend Growth Rate | Required Return | Per Share Price |
| A) | A | 5% | 15% |
| B) | B | 6% | 14% |
| C) | C | 7% | 17% |
| D) | D | 4% | 16% |
| E) | E | 8% | 17% |
| The best alternative for maximizing selling price is: |
| Problem P8-1: |
| Vaue of Investment X 1 year ago = | $20,000 |
| Part a: | Vaue of Investment Y 1 year ago = | $55,000 |
| Investment X cash flow = | $1,500 |
| Investment Y cash flow = | $6,800 |
| Current Market Value of Investment X = | $21,000 |
| Current Market Value of Investment Y = | $55,000 |
| Rate of return on Investment X = |
| Rate of return on Investment Y = |
| Part b: | Assuming both investments are equally risky, which |
| should he recommend? |
| Problem P8-2: |
| Investment | Cash Flow During Period | Beg of Period Value | End of Period Value | Rate of Return |
| A | (800) | 1,100 | 100 |
| B | 15,000 | 120,000 | 118,000 |
| C | 7,000 | 45,000 | 48,000 |
| D | 80 | 600 | 500 |
| E | 1,500 | 12,500 | 12,400 |
| Problem P8-7: |
| Part a: |
| Investment | Expected Return | Standard Deviation | Coefficient of Variation |
| A | 20% | 7.00% |
| B | 22% | 9.50% |
| C | 19% | 6.00% |
| D | 16% | 5.50% |
| Part b: |
| If the firm wishes to minimize risk, which alternative do you recommend and why? |
| Problem P8-24: |
| Case | Risk-Free Rate | Market Return | Beta | Required Return |
| A | 5% | 8% | 1.30 |
| B | 8% | 13% | 0.90 |
| C | 9% | 12% | -0.20 |
| D | 10% | 15% | 1.00 |
| E | 6% | 10% | 0.60 |
King Wave
MGMT_240_Wk5_HW.xlsx
