Question

If the current yield of a bond goes down from 6.2% to 4.1%, by what percent does the market price increase?

Round your answer to the nearest percent.

Suppose that 5 years ago, you purchased 294 shares of stock in a corporation. Between then and now, the stock had a 2:1 split and a 4:1 split. Today, each share sells for $15. If selling all of your shares today would give your investment an annual rate of return of 12%, what was the price per share when you made the purchase 5 years ago?

Round your answer to the nearest dollar.

Answer 1

If the current yield of a bond goes down from 6.2% to 4.1%, by what percent does the market price increase?
Current yield = Annual coupon / Bond price
A bond's current yield is inversely related to its price, and changes whenever the bond's price change
if the yield goes down from 6.2% to 4.1%, then yield has decreased by a factor of: 4.1%/6.2%	66%
Consequently, market price must increase by the same factor:	66%
Suppose that 5 years ago, you purchased 294 shares of stock in a corporation. Between then and now, the stock had a 2:1 split and a 4:1 split. Today, each share sells for $15. If selling all of your shares today would give your investment an annual rate of return of 12%, what was the price per share when you made the purchase 5 years ago?
Number of shares Purchased originally	294	shares
After 2: 1 split # of shares  (294 x 2)	588	Shares
After 4: 1 split # of shares  (588 x 4)	2352
Current selling price = (2352 x $15)	$          35,280.00
Rate	12%
Period	5
Present Value of shares = PV(12%,5,0,-35280)	$20,018.82
Price per share = $20018.82/2352 shares	$9