Fin 405- Chapter Questions

1. You are considering a car loan with a stated APR of 6% based on monthly compounding. What is the effective annual rate of this loan?

2. Your company wants to raise $10 million by issuing 20-year zero-coupon bonds. If the yield to maturity on the bonds will be 6% (annually compounded APR), what total principal amount of bonds must you issue?

3. The yield to maturity of a $1000 bond with a 7% coupon rate, semiannual coupons, and two years to maturity is 7.6% APR, compounded semiannually. What must its price be?

4. Summit Systems will pay a dividend of $1.50 this year. If you expect Summit’s dividend to grow by 6% per year, what is its price per share if the firm’s equity cost of capital is 11%?

5. The following table contains prices and dividends for a stock. All prices are after the dividend has been paid. If you bought the stock on January 1 and sold it on December 31, what is your realized return?

                                      Price     Dividend

Jan 1                              10.00

Mar 31                          11.00            0.20

Jun 30                          10.50           0.20

Sep 30                           11.10           0.20

Dec 31                           11.00           0.20