A = Annual

1. Compute the continuously compounded yields of these five bonds.
2. Compute the continuously compounded zero rates for maturities of 1,2,3,4, and 5 years.

1) Explain what debt investments are investment grade. What rate of return would you expect on investment grade debt versus other non-investment grade debt (and why)?

2) Explain the difference between constant dividend growth and supernatural dividend growth.

1. Why do you think investors want to own stocks instead of bonds, besides the opportunities to earn superior returns? Write 100 words.

2. What preference do you have regarding owning stocks vs. bonds? Why do you have that preference? Write 100 words.

3. How many different stocks and or bonds do you own? Do you have a diversified portfolio? Write 100 words.

Please write in your own words. Please write appropriate answers and don't copy them from anywhere. Thank you!

You have estimated that the annual expected return on Apple stock is 15% and that Apple’s standard deviation is 20%. The Treasury bill rate is 1%. You are considering an asset allocation between T-bills and Apple stock and given your risk preferences and investment objectives, you seek to establish a portfolio with an expected return of 8%.

27. In relation to the problem above, what proportion of your portfolio should you allocate to Apple stock (rounding to the nearest whole percent)?

a. 20%

b. 40%

c. 50%

d. none of the above.

28. In relation to the problem above, what will be the variance on your portfolio?

(a) 0.01

(b) 0.04

(c) 0.08

(d) 0.1

(e) 0.15

Complete b-e and show explanations

You are looking to purchase a $10,000 bond issued by Mexico in USD. It pays $500 annually and matures exactly 10 years from now.

A) What is Mexico’s current long term foreign currency credit rating by S&P? AA-

B) How much would you pay for this bond?

C) What rate did you use to make the calculation?

D) Why did you choose the rate?

bond valuation assume the following information for an existing bong that provides annual coupon payments: par value= $1,000 coupon rate= 11% maturity= 4 years required rate of return by investors= 11% a). what is the present value of the bond? b). if the required rate of return by investors were 14 percent instead of 11 percent, what would be the present value of the bond? c). if the required rate of return by investors were 9 percent, what would be the present value of the bond?

Miles Hardware has an annual cash dividend policy that raises the dividend each year by 10​%. Last​ year's dividend, Div 0​, was $ 1.50 per share. Investors want a return of 17% on this stock. What is the​ stock's price if a.  the company will be in business for 10 years and not have a liquidating​ dividend? b.  the company will be in business for 20 years and not have a liquidating​ dividend? c.  the company will be in business for 30 years and not have a liquidating​ dividend? d.  the company will be in business for 45 years and not have a liquidating​ dividend? e.  the company will be in business for 90 years and not have a liquidating​ dividend? f.   the company will be in business​ forever? a.  What is the price of this stock if the company will be in business for 10 years and not have a liquidating​ dividend?

You are ready to buy a house and you have $85,000 for a down payment and closing costs. Closing costs are estimated to be 3.5% of the loan value. You have an annual salary of $125,000. The bank is willing to allow your monthly mortgage payment to be equal to 28% of your monthly income. The interest rate on the loan is 4.5% per year with monthly compounding for a 30-year fixed rate loan. How much money will the bank loan you? How much can you offer for the house? Construct a loan amortization table for the mortgage. Please submit the actual Excel spreadsheet with formulas embedded in the spreadsheet.

Midland Petroleum is holding a stockholders’ meeting next month. Ms. Ramsey is the president of the company and has the support of the existing board of directors. All 14 members of the board are up for reelection. Mr. Clark is a dissident stockholder. He controls proxies for 30,001 shares. Ms. Ramsey and her friends on the board control 50,001 shares. Other stockholders, whose loyalties are unknown, will be voting the remaining 28,998 shares. The company uses cumulative voting.
a. How many directors can Mr. Clark be sure of electing? (Do not round intermediate calculations. Round down your answer to the nearest whole number.)

Number of directors ___

b. How many directors can Ms. Ramsey and her friends be sure of electing? (Do not round intermediate calculations. Round down your answer to the nearest whole number.)

Number of directors ___

c-1. How many directors could Mr. Clark elect if he obtains all the proxies for the uncommitted votes? (Do not round intermediate calculations. Round down your answer to the nearest whole number.)

Number of directors ___

c-2. Will he control the board?

• Yes

• No

d. If ten directors were to be elected, and Ms. Ramsey and her friends had 58,001 shares and Mr. Clark had 38,001 shares plus half the uncommitted votes, how many directors could Mr. Clark elect? Assume the same number of total shares as the original question. (Do not round intermediate calculations. Round down your answer to the nearest whole number.)

number of directors _____

1. If an investor borrows money to invest in risky portfolio, where will the combination portfolio (the leveraged portfolio) be positioned?

a. Above the CAL

b. Below the CAL

c. On the CAL to the left of risky portfolio

d. On the CAL to the right of risky portfolio

2. An investor’s utility function for expected return and risk is U = E(r)−4σ^2. Which of the following would this investor prefer to invest in?

a. a risk-free security offering a return of 8 percent per year

b. a risky portfolio with expected return of 14 percent per year and standard deviation of 25 percent per year

3. Cathy Chu has $10,000 in a savings account that guarantees her a return of 5% per year. Cathy was offered an investment opportunity that has an expected return of 5% but possible returns range from −30% to 40%. Cathy declined the investment opportunity in favor of her savings account. Cathy is

a. risk adverse

b. risk avoider

c. risk intolerant

d. risk averse

8. Cogswell Cogs (CC) produces cogs – surprise! The estimated cost to produce cogs is
   ($4 + $18/(x+2)) per cog, where x is the number of cogs produced/sold. CC can currently sell 20 cogs for $10 each. What is the current profit per cog and total profit for CC? What is the marginal cost of producing the next cog? A new customer has offered to buy an additional 10 cogs, but wants a discount of $1 per cog, should you sell the 5 cogs to the new customer? Assuming your old customers find out and also demand the discount, should you still sell the 5 cogs to the new customer? What is CC’s total profit if they take the new customer

Covered Interest Arbitrage. Assume the following information:

Suppose an initial investment of 1,000,000 pesos. Given this information, Mexican Investors would generate a yield of ???

Assume the following information:

interest rate parity doesn’t exist and covered interest arbitrage by U.S. investors results in a yield of _______ which is above what is possible domestically

Allison and Leslie, who are twins, just received $40,000 each for their 24th birthday. They both have aspirations to become millionaires. Each plans to make a $5,000 annual contribution to her "early retirement fund" on her birthday, beginning a year from today. Allison opened an account with the Safety First Bond Fund, a mutual fund that invests in high-quality bonds whose investors have earned 8% per year in the past. Leslie invested in the New Issue Bio-Tech Fund, which invests in small, newly issued bio-tech stocks and whose investors have earned an average of 15% per year in the fund's relatively short history.

1. If the two women’s funds earn the same returns in the future as in the past, how old will each be when she becomes a millionaire? Do not round intermediate calculations. Round your answers to two decimal places.
   Allison:  
   Leslie:  

2. How large would Allison's annual contributions have to be for her to become a millionaire at the same age as Leslie, assuming their expected returns are realized? Do not round intermediate calculations. Round your answer to the nearest cent.

3. Is it rational or irrational for Allison to invest in the bond fund rather than in stocks?