Suppose a​ ten-year, $1,000 bond with an 8.5 % coupon rate and semiannual coupons is trading for $1,035.71.

a. What is the​ bond's yield to maturity​ (expressed as an APR with semiannual​ compounding)?

b. If the​ bond's yield to maturity changes to 9.1 % ​APR, what will be the​ bond's price?

Carla Vista, Inc., is a fast-growing technology company. Management projects rapid growth of 30 percent for the next two years, then a growth rate of 17 percent for the following two years. After that, a constant-growth rate of 8 percent is expected. The firm expects to pay its first dividend of $2.26 a year from now. If dividends will grow at the same rate as the firm and the required rate of return on stocks with similar risk is 22 percent, what is the current value of the stock? (Round all intermediate calculations and final answer to 2 decimal places, e.g. 15.20.)

1. What would be the yield to maturity for a bond with a $70 coupon, interest paid semiannually, $1000 maturity value, 12 years to maturity and a quoted price of 104.50 (Actual price of $1045)? Remember we are taking the view of the investor, so the price needs to be entered with a negative sign because if we buy the bond, that is cash out of our account

2. If the quoted price fell to 99 (actual price $990), what would be the pretax yield to maturity? How about if the quoted price instead rose to 110.5 (actual price $1105)? What do you conclude from this about the relationship between the bond price and the market rate of interest?

3. A further complication related to bonds is that interest is deductible for tax purposes, so to arrive at an after-tax cost of debt for the firm, rather than a return for investors, it is necessary to multiply the yield by (1- tax rate) to get the after-tax cost of debt. For the first example with a quoted price of 104.5 (actual price of $1045), assuming that the tax rate is 20%, what would be the after-tax cost of debt?

4. To sum up the cost of debt, we only really have three variables to work with - the market rate of interest, the bond price and the firm's tax rate. The coupon payment, time to maturity and the maturity value for a specific bond are effectively fixed. As those first three variables (market interest, bond price and firm's tax rate) change, up or down, how does that affect the firm's after-tax cost of debt?

Holly bought a 7-year bond, with a 3% coupon paid semi annually. It was priced to yield 3% when she bought it. What is the effective duration assuming a 100-basis point change in interest rates?

INTC current stock price is 23. You sold a 22 put and bought a 21 put. The premium on the 22

put is 0.6, and the premium on the 21 put is 0.3. Analyze your gain or loss if on the expiration

day the stock price is larger than 22, between 21 and 22, less than 21.

what would be the yield to maturity for a bond with a $70 coupon, interest paid semiannually, $1000 maturity value, 12 years to maturity and a quoted price of 104.50 (Actual price of $1045)?

The following is market information: Current spot rate of pound = $1.23 90-day forward rate of pound = $1.24 3-month deposit rate in U.S. = 1.1% 3-month deposit rate in Great Britain = 1.3% If you have $250,000 and use covered interest arbitrage for a 90-day investment, what will be the amount of U.S. dollars you will have after 90 days?

There are two major approaches to corporate valuation: a) using comparable firms (via multiples, i.e. ratios) and b) discounted cash flows based methods (FCF models, capital budgeting metrics all fall into this category). Based on the case, which method (A or B above) do you find more useful? Briefly discuss relative strengths and weaknesses you can think of for both methods. Answer detailed.

A 4-year annuity of eight $9,800 semiannual payments will begin 7 years from now, with the first payment coming 7.5 years from now.

a. If the discount rate is 7 percent compounded monthly, what is the value of this annuity five years from now? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

b. If the discount rate is 7 percent compounded monthly, what is the value three years from now? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

c. If the discount rate is 7 percent compounded monthly, what is the current value of the annuity? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

SHOW HOW TO SOLVE WITH FINANCIAL CALCULATOR PLEASE

What is the duration of a 10-year bond with a coupon rate of 6%, paid annually, and a yield to maturity of 11%?

Luke and Amy are saving for the down payment on a house. The houses in the area they prefer have an average selling price of $450,000 and they need a 10% down payment to ensure their mortgage payments are not too high. They have $30,000 saved that they can invest today at 6.5% (annual compounding).

a) How long before they will have enough for the down payment saved?

b) They want to buy the house sooner.  In addition to the $30,000 saved to date, how much would they need to invest each month (into the same investment) in order to have enough for the down payment in 2 years?

c) What would their payments be for part (b) if they made them at the beginning of the month instead of the end?

Ratio analysis is used to make relative comparisons between organizations. Given that, why might an organization’s ratios on HIT spending differ from their peers? Might those differences be a good, bad, or indifferent thing?

Greta, an elderly investor, has a degree of risk aversion of A = 3 when applied to return on wealth over a one-year horizon. She is pondering two portfolios, the S&P 500 and a hedge fund, as well as a number of one-year strategies. (All rates are annual and continuously compounded.) The S&P 500 risk premium is estimated at 8% per year, with a SD of 23%. The hedge fund risk premium is estimated at 13% with a SD of 38%. The returns on both of these portfolios in any particular year are uncorrelated with its own returns in other years. They are also uncorrelated with the returns of the other portfolio in other years. The hedge fund claims the correlation coefficient between the annual returns on the S&P 500 and the hedge fund in the same year is zero, but Greta is not fully convinced by this claim.

What should be Greta’s capital allocation? (Do not round your intermediate calculations. Round your answers to 2 decimal places.)

S&P%

hedge&

risk-free asset&

Part B. In clear terms explain why knowledge of valuation is vital in entrepreneurial finance. In your response, make sure to answer the question from the points of view of: (20 points)

1. Entrepreneurs;

2. Investors
3. Future Team Members in a venture

Part C. What are the most important things that you can do for a venture in order to get the odds of success in your favor? Explain. (10 points)