YIELD TO MATURITY AND FUTURE PRICE A bond has a $1,000 par value, 10 years to maturity, and a 7% annual coupon and sells for $985.

A. What is its yield to maturity (YTM)?

B. Assume that the yield to maturity remains constant for the next three years. What will
the price be 3 years from today?

CURRENT YIELD, CAPITAL GAINS YIELD, AND YIELD TO MATURITY Hooper Printing Inc. has bonds outstanding with 9 years left to maturity. The bonds have an 8% annual coupon rate and were issued 1 year ago at their par value of $1,000. However, due to changes in interest rates, the bond’s market price has fallen to $901 40. The capital gains yield last year was −9 86%.

A. What is the yield to maturity?

B. For the coming year, what are the expected current and capital gains yields? (Hint:
Refer to footnote 7 for the definition of the current yield and to Table 7.1.)

C. Will the actual realized yields be equal to the expected yields if interest rates change? If
not, how will they differ?

Suppose that there are many stocks in the security market and that the characteristics of stocks A and B are given as follows:

Suppose that it is possible to borrow at the risk-free rate, r_f. What must be the value of the risk-free rate? (Hint: Think about constructing a risk-free portfolio from stocks A and B.) (Do not round intermediate calculations. Round your answer to 3 decimal places.)

You are bullish on Telecom stock. The current market price is $20 per share, and you have $2,000 of your own to invest. You borrow an additional $2,000 from your broker at an interest rate of 7.5% per year and invest $4,000 in the stock.

a. What will be your rate of return if the price of Telecom stock goes up by 9% during the next year?

How far does the price of Telecom stock have to fall for you to get a margin call if the maintenance margin is 30%? Assume the price fall happens immediately.

1. As far as finances, Is Marriott firm acting in a socially responsible manner? Is the firm being environmentally responsible?

The most recent financial statements for GPS, Inc., are shown here:

Assets and costs are proportional to sales. Debt and equity are not. A dividend of $1,649 was paid, and the company wishes to maintain a constant payout ratio. Next year’s sales are projected to be $26,534.

What is the external financing needed?

What does IRR mean? How it is estimated? Be specific. Are there problems with IRR? Explain.

A) Bank A offers a 2-year certificate of deposit (CD) that pays 10 percent compounded annually. Bank B offers a 2-year CD that is compounded semi-annually. The CDs have identical risk. What is the APR that Bank B would have to offer to make its EAR equivalent to the CD at Bank A?

Consider the following simplified financial statements for the Fire Corporation (assuming no income taxes):

The company has predicted a sales increase of 15 percent. It has predicted that every item on the balance sheet will increase by 15 percent as well.

How much dividends should be paid to reconcile the pro forma balance sheet?

Suppose that Xtel currently is selling at $35 per share. You buy 800 shares using $15,000 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 8%. If the maintenance margin is 30%, how low can Xtels price be before you get a margin call?

A bond has a coupon rate of 10 percent and 4 years until maturity. If the yield to maturity is 10.3 percent, what is the price of the bond?

Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $40,000 or $120,000, with equal probabilities of 0.5. The alternative riskless investment in T-bills pays 4%.

a. If you require a risk premium of 7%, how much will you be willing to pay for the portfolio? (Round your answer to the nearest dollar amount.)

b. Suppose the portfolio can be purchased for the amount you found in (a). What will the expected rate of return on the portfolio be? (Do not round intermediate calculations. Round your answer to the nearest whole percent.)

c. Now suppose you require a risk premium of 12%. What is the price you will be willing to pay now? (Round your answer to the nearest dollar amount.)

Assume that the DJIA closed at 10,875 one day recently, and the divisor was .12493117.
a. What is the sum of the prices of the 30 stocks in the index, given this information?
b. Assume that one stock in the index, Pfizer, moved $4.40 that day, while the index itself
moved about 105 points (to close at 10,875). What percentage of the total movement in
the DJIA that day was accounted for by the movement in Pfizer?
c. Now assume that one of the 30 stocks had a 2-for-1 stock split that day, declining from
$47.50 to $23.75. What would the new divisor have to be to keep the index unchanged at
10,875?

Challenge question I.  Michael is shopping for a special automobile. He finds the exact car he​ wants, a 1966 dark blue Pontiac GTO. This car is currently the property of a​ neighbor, so to buy it for the​ agreed-upon price of ​$45,000​, Michael must secure his own financing. He visits four different financial institutions and gets the following available​ loans

Bank​ 1:  36 monthly payments of ​$1, 399.78

Bank​ 2:  60 monthly payments of ​$891.05

Bank​ 3:  312 weekly payments of ​$177.97​(Assume a​ 52-week year.)

Bank​ 4:  16 quarterly payments of ​$3,297.87

Which loan should Michael​ take?  ​Hint:  Which loan has the lowest​ EAR? If Michael selects Bank 1 for the​ loan, what is the periodic interest rate on the​ loan?