Question

(1) Given the following information what is the percentage change in the price of the bonds if interest rates suddenly rise by 4%?

Wing Air Inc.
Coupon rate	7%
Settlement date	1/1/2000
Maturity date	1/1/2002
Face value	1,000
# of coupons per year	2
Airfoil, Inc.
Coupon rate	7%
Settlement date	1/1/2000
Maturity date	1/1/2015
Face value	1,000
# of coupons per year	2
Change in interest rate	4%

(A) Wing Air -7.01%, Airfoil -29.07%

(B) Wing Air -7.0%, Airfoil -29.22%

(C) Wing Air 7.71%, Airfoil 48.03%

(D) Wing Air -12.27%, Airfoil -50.87%

Cavu Air Inc., issued 15 Year bonds 2 years ago at a coupon rate of 5.50% percent. The bonds make semi annual payments. If these bonds currently sell for 104 percent of par value, what is the YTM?

Settlement date	1/1/2000
Maturity date	1/1/2013
Annual coupon rate	5.50%
Coupons per year	2
Face value (% of par)	100
Bond price (% of par)	104

(A) 5.29%

(B) 5.71%

(C) 5.08%

(D) 5.50%

Contrail Air Inc. Just paid a dividend of $2.00 per share on its stock. The dividends are expected to grow at a constant rate of 4% percent per year, indefinitely. If investors require a return of 12% percent, what is the current price?

Dividend paid	$2.00
Dividend growth rate	4%
Required return	12%
Requested year	0

(A) 24.04

(B) (26.00)

(C) 26.00

(D) 24.00

Answer 1

1)	Wing Air Inc.		Original Price	New Price	% Change
	Coupon rate	7%	$1,000.00	$929.90	-7.01%
	Settlement date	1/1/2000
	Maturity date	1/1/2002
	Face value	1,000
	# of coupons per year	2
	Airfoil, Inc.
	Coupon rate	7%	$1,000.00	$709.33	-29.07%
	Settlement date	1/1/2000
	Maturity date	1/1/2015
	Face value	1,000
	# of coupons per year	2
	Change in interest rate	4%
	Correct Answer is	(A) Wing Air -7.01%, Airfoil -29.07%
2)	Settlement date	1/1/2000	YTM	5.08%
	Maturity date	1/1/2013
	Annual coupon rate	5.50%	Correct Answer is c) 5.08%
	Coupons per year	2
	Face value (% of par)	100
	Bond price (% of par)	104
3)	Dividend paid	2.0000
	Dividend growth rate	4.00%
	Required return	12.00%
	Requested year	0
	Price	26.0000
	Correct Answer is c) 26.00