Submitted by: Submitted by corey2009
Views: 139
Words: 270
Pages: 2
Category: Business and Industry
Date Submitted: 05/26/2013 07:15 PM
5-1 Bond Valuation with Annual Payments:
P = F*r*[1 -(1+i)^-n]/i + C*(1+i)^-n
= 1000*.08 * (1 - 1.09^-12)/.09 + 1000*1.09^-12
= 80*7.1607+1000*.3555 = $928.39
5-2 YTM for Annual Payments:
100+1000-850/12/1000+850/2 =
112.5/925 = .1216 or 12.16%
5-6 Maturity Risk Premium:
6.3-3-3 = 0.3%
5-7 Bond Valuation with Semi-Annual Payments:
50*11.44+1000*.5138 = 1086
5-13 Yield to Maturity and Current Yield:
Current price = 80/.0821 = 974
YTM = 80+1000-974/5/1000+974/2 = 85.2/987 = .0863 or 8.63%
6-6 Beta and Expected Return:
If the beta doubles, it is not a guarantee that the expected return will double.
6-1 Portfolio Beta:
.8*35000/75000+1.4*40000/75000 = .3733+.7467 = 1.12
6-2 Required Rate of Return Stock:
6+.7*13-6= 10.9%
6-7 Required Rate of Return:
Suppose rRF = 9%, rM = 14%, and bi = 1.3.
a. 9+1.3*14-9=15.5%
b. Ri will be at 10% = 10+1.3*14-10 = 15.2%
It has decreased by 0.3%
Ri will be at 8% = 8+1.3*14-8 = 15.8%
It has increased by 0.3%
It may be assumed that there will not be any impact on rM
c. Ri will be at 16% = 9+1.3*16-9 = 18.1%
It has increased by 2.6%
Ri will be at 13% = 9+1.3*13-9 = 14.2%
It has decreased by 1.3%