Question

A.) What’s the current yield of a 4.30 percent coupon corporate bond quoted at a price of 101.88? (Round your answer to 2 decimal places.)

Your discount brokerage firm charges $8.85 per stock trade.

B.) How much money do you need to buy 190 shares of Pfizer, Inc. (PFE), which trades at $43.72? (Round your answer to 2 decimal places.)

C.)

Determine the interest payment for the following three bonds. (Assume a $1,000 par value.) (Round your answers to 2 decimal places.)

3.30% percent coupon corporate bond (paid semi-annually)=?

4.05% percent coupon treasury note=?

Corporate zero-coupon bond maturing in ten years=?

D.)

Ultra Petroleum (UPL) has earnings per share of $1.53 and a P/E ratio of 32.88.

What’s the stock price? (Round your answer to 2 decimal places.)

Answer 1

Answer A:
Current yield=Annual coupon payment/Current bond price
Suppose the face value of the bond is $1000
Annual coupon payment=(Coupon rate)*(Face value)=4.3%*1000=43
Given that, the bond is quoted at a price of 101.88.

So, the current bond price=101.88%*Face value=(101.88/100)*1000=1018.8
Current yield=43/1018.8=0.042206517 or 4.22% (Rounded to two decimal places)

Answer B:
Amount required=(Per share price)*(Number of shares to be purchased)+Brokerage per stock trade
Per share price=$43.72
Number of shares to be purchased=190
Brokerage per stock trade=$8.85
Amount required=43.72*190+8.85=$8315.65

Answer C:
Part 1:
Annual coupon payment is calculated as (coupon rate)*(par value)
Coupon rate=3.3% and coupon is paid semiannually.
So, semiannual coupon payment=1/2*3.3%*1000=16.5

Part 2:
Coupon rate=4.05%
For treasury note, coupon payment=1/2*(coupon rate)*(par value)
=1/2*4.05%*1000=$20.25

Part 3:
Zero coupon bonds do not make any coupon payment.
So, coupon payment=$0

Answer D:
Stock price=EPS*PE=1.53*32.88=$50.3064 or $50.31 (Rounded to two decimal places)