Questions #7,8, and CFA problem at bottom of page.Problem Set 4Due: Monday, Oct. 24. 12:00 pm 1) Assume that Ford has a 30 year, 6.5% coupon bond. Given Fordâs recent troubles, your brokerindicates that the yield-to-maturity of this bond should be 7.95%. Assume that couponpayments are annual. What should be the price of this bond? 2) Assume that 3M Corporation has a 15 year, 8% coupon bond and that its reported yield-tomaturity is 7.3%. Assume that coupon payments are semiannual (remember that if paymentsoccur on a semiannual basis then the reported yield to maturity will actually be twice thesemiannual yield). What is the price of this bond? 3) Disney Corp has a 7 year, 6.95% coupon bond that is currently selling for 978.65. Assume thatcoupon payments are annual. What is the yield-to-maturity of this bond? (USE excel)7.35% use IRR on excel.4) Hayworth Industries does not currently pay dividends; however, investors expect that in fouryears, the firm will pay its first dividend of $1.50 per share. From that point onwards, thedividend is expected be $2 annually forever. Assume that investors required rate of return is13%. What should the price of Hayworth Industries be today? 5) Last year, IBM paid a dividend of $1.50 per share. Investors think that IBMâs dividend will growat 10% for the next four years. After that, the dividend will be constant at $4. What should bethe price per share of IBM if the discount rate is 8%? Chapter 56. You are considering the choice between investing $50,000 in a conventional 1-year bank CD offeringan interest rate of 5% and a 1-year âInflation Plusâ CD offering 1.5% per year plus the rate of inflation.a. Which is the safer investment?b. Which offers the higher expected return?c. If you expect the rate of inflation to be 3% over the next year, which is the better investment?d. If we observe a risk-free nominal interest rate of 5% per year and a risk free real rate of 1.5% oninflation-indexed bonds, can we infer that the market expected rate of inflation is 3.5% per year?7. Suppose your expectations regarding the stock price are as follows:State of the MarketProbabilityEnding PriceBoom0.35$140Normal Growth0.30110Recession0.3580 HPR(including dividends)44.5%14.0-16.5 Compute the mean and standard deviation of the HPR on the stocks.8. Derive the probability distribution of the 1-year HPR on a 30-year US treasury bond with an 8%coupon if it is currently selling at par and the probability distribution of its yield to maturity a year fromnow is as follows:State of the Economy Probability YTMBoom0.2011.0%Normal Growth0.508.0Recession0.307.0For simplicity, assume the entire 8% coupon is paid at the end of the year rather than every 6 months.CFA problems:1. Given $100,000 to invest, what is the expected risk premium in dollars of investing in equitiesversus risk-free T-bill ( US Treasury bills) based on the following table:ActionInvest in equitiesInvest in risk-free T-bill Probability0.60.41.0 Expected outcome$50,000-$30,000$5,000
It is our mission to promote academic success by providing students with superior research and writing, produced by exceptional writers and editors.
Our academic writers have all levels of degrees so that we can accommodate all academic levels. If you are a high school student, you will receive a personally assigned writer with at least a Bachelor’s degree in the subject field.
For any questions, feedback, or comments, we have an ethical customer support team that is always waiting on the line for your inquiries.
Phone: +1 (708)-515-4480