Question

1..... Bombay Company has issued $1,000 par value bonds that are currently selling for $933.89. The bonds have a coupon rate of 9% and are paying interest semiannually. What is the yield-to-maturity on these bonds if they have 8 years until they reach maturity? Select one: A. 9.49% B. 8.03% C. 9.44% D. 10.23%

2....A 20-year $1,000 par value bond pays a coupon rate of interest of 12%. If similar bonds are currently yielding 9%, what is the market value of the bond? Assume semi-annual coupon payments. Select one: A. $1,236.45 B. $1,273.86 C. $1,323.80 D. $1,276.02

3... At the end of the coming year, State Street Corporation will pay a dividend of $4.75 per share on its common stock. The required rate of return is 11%. The firm expects dividends to grow at a constant rate of 6%. What is the value of a share of State Street's stock? Select one: A. $36 B. $67 C. $80 D. $95

Answer 1

Solution 1:

	Frequency in a year	2
	YTM	0.00%
	Coupon rate	9.00%
	Face value	$       1,000
	Coupon payment	$       45.00	=1000*9%/2
	Years to maturity	5
	No. of periods	10
		5.00%						6.00%
Year	Cash Flow	PV factor = 1/ (1+r)^t	PV					PV factor = 1/ (1+r)^t	PV
0	$                  (933.89)	1.000	$   (933.89)					1.000	$   (933.89)
1	$                      45.00	0.952	$       42.86					0.943	$       42.45
2	$                      45.00	0.907	$       40.82					0.890	$       40.05
3	$                      45.00	0.864	$       38.87					0.840	$       37.78
4	$                      45.00	0.823	$       37.02					0.792	$       35.64
5	$                      45.00	0.784	$       35.26					0.747	$       33.63
6	$                      45.00	0.746	$       33.58					0.705	$       31.72
7	$                      45.00	0.711	$       31.98					0.665	$       29.93
8	$                      45.00	0.677	$       30.46					0.627	$       28.23
9	$                      45.00	0.645	$       29.01					0.592	$       26.64
10	$                      45.00	0.614	$       27.63					0.558	$       25.13
11	$                      45.00	0.585	$       26.31					0.527	$       23.71
12	$                      45.00	0.557	$       25.06					0.497	$       22.36
13	$                      45.00	0.530	$       23.86					0.469	$       21.10
14	$                      45.00	0.505	$       22.73					0.442	$       19.90
15	$                      45.00	0.481	$       21.65					0.417	$       18.78
16	$                      45.00	0.458	$       20.62					0.394	$       17.71
16	$                 1,000.00	0.458	$     458.11					0.394	$     393.65
		Total	$       11.92					Total	$     (85.48)
NPV @ 0.05	11.92
NPV @ 0.06	(85.48)
Difference in both	97.40
YTM	=Lower rate + Difference in rates*(NPV at lower rate)/(Lower rate NPV-Higher rate NPV)
	'=5%+ (6%-5%)*(11.921/(11.921+85.478)
YTM	5.12%
Annual YTM-	5.12*2%
Annual YTM-	10.24%

Solution-2:

PV of annual interest payment
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