Question

Amazon has issued 25-year semi-annual coupon bonds that have six years left until maturity. If the coupon rate is 6.70%, and the YTM is 6.80%, what is the number of coupons that are valued in the today’s price? A50 b25 c12 d6 e 2

Warren Buffett expects a 6% return on Goldman Sack’s preferred stock, and the dividend is expected to be $1.30 every six months, what is the fair price for this preferred stock per share? A 43.333 b 21.667 c 86.667 d 1.245 e none of the above

Answer 1

Q-1)

- Number of years left to maturity = 6 years

Coupon payments are made semi-annually which measn 2 payments in a year.

So, No of coupon that are valued in today's price = 6 years*2 = 12

Option C

Q-2)

Dividend of Preferred Stock every 6 months = $1.30

Semi-annual return on Preferred Stock = 6%/2 = 3%

Price of Preferred Stock per share = Dividend/Semi-annual return

Price of Preffered Stock per share = $1.30/3%

Price of Preffered Stock per share = $43.333

Option A