Eartheral Mandental Prolilormial

1. To begin, assume that it is now January 1, 1993, and that each bond in Table 1 matures on December 31 of the year listed. Further, assumes that each bond has $1,000 par value, each had a 30-year maturity when it was issued, and the bonds currently have a 10 percent required nominal rate or return.

1. If we ignore tax considerations and assume that Sally is free to sell options at any time after her joins Telstar, which compensation package is worth more?

A bond with an annual coupon of $70 and originally sold at par for $1,000. The current market interest rate (yield to maturity) is 8%. This bond will sell at _______. Assuming no change in market interest rates, the bond will present the holder with capital ________ as it matures.

23. Ivy has preferred stock selling for 98 percent of par that pays a 7 percent annual coupon. What would Ivy’s component cost of preferred stock ?

(b) Coupon and principal of the Regular Treasury bonds are fixed, therefore if the inflation rate increases in the forecasting future, investor will receive the same amount of coupon and principal with less real value and purchasing power.

The yield to maturity on a 15-year bond is a true estimate of the cost of 30-year bond

A firm has an expected dividend next year of $1.20 per share, a zero growth rate

3. Which of the following statements about the yield-to-maturity is true? a) Discounting all cash flows of a bond with the bond’s yield-to-maturity only gives us the correct price if we have a flat term structure of interest rates. b) The yield-to-maturity is upwards sloping. c) The yield-to-maturity is always a spot rate. d) Several of the above statements are true. e) None of the above statements are true. E is correct. The yield-to-maturity, y is the constant hypothetical interest rate that solves P = 1 FV c 1− + T y (1 + y) (1 + y)T

51. (LO2) Assume that on January 1, year 1, ABC Inc. issued 5,000 stock options with an estimated value of $10

Its coupon rate is 8.3%. Its value at maturity is $1,000. It matures in 4 years. Its yield to maturity is currently 5.3%. The modified duration of this bond is ______ years.

Once again, the clue here is on page 206. Remember that the exercise is asking for the current price, which means the P0. Use Formula [7.3] of the textbook.

Firstly, there are some simplifications to be done to get all the necessary inputs for the Black & Scholes model. One approximation to be made is the estimation of the

b. Generate a graph or table showing how the bond’s present value changes for semi-annually compounded interest rates between 1% and 15%.

If the company benefits from the provision of the bond, then the coupon rate will be higher. If the bondholder’s benefit, then the bond will have lower coupon rate.

That rate was determined by the rating of the bond. Bond ratings are derived from a