Fin 515 Week 3 Hmwk

5.1

P = F*r*[1 -(1+i)^-n]/i + C*(1+i)^-n, where

F = 1000

C = 1000

r = .08

i = .09

n = 12

the bond price is 1000*.08 * (1 - 1.09^-12)/.09 + 1000*1.09^-12 = $928.39

5.2

Time to maturity=12 Years

Par Value=1,000

Coupon rate=10%

Price of the bond=$850

Value of the bond t=1nPar value*Coupon rate1+YTMt+Par value1+YTMn

Par Value=1,000

Coupon rate=10%

Time to maturity=12 Years

Yield to maturity=12.475%

5.6

Average inflation for 2 years=(IP2)=[(3%+3%0/2]

K=3%

IP2=3%

Yield on 2 years Treasury Security=6.3

(KT-2)=K+IP2+MRP2

MRP2=6.3-6

=.063-.006

.057

5.7

FV 1,000 

PMT 50

N 16 8.5/2=4.25%

Interest rate=

R 4.25% 

Present Value = $1,085.80

5.13

PV=Annual interest/current yield

80/8.21%=$974.42

=rate(55,80,-974.42,1000)

Yield to Maturity=7.65%

6.6

No

6.1

08 + 1.4/2

=1.1

6.2

Rate of return on stock = risk free rate + (Expected return on market - risk free rate) * Beta

Rate of return on stock = .06 + (.13 - .06) * .7

Rate of return on stock = .0649

6.7

A. CAPM

= rRF + bix (rM – rRF)

ri = 9% + 1.3 x (14% - 9%) = 9% + 1.3 x 5% =

= 15.5%

B.

ri= rRF + bi * Market Risk Premium

(1) rRF = 10%

ri = 10% + 1.3 x 5% = 16.5%

(2) rRF = 8%

ri = 8% + 1.3 x 5% = 14.5%

C.

ri= 9% + 1.3 x (16% - 9%) = 18.1%

(2) rRF = 9%, rM = 13%

RI= 9% + 1.3 x (13% - 9%) = 14.2%