Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

problem 1: Judy Johnson is choosing between investing in two Treasury securities which mature in five years and have par values of $1,000. One is a Treasury note paying an annual coupon of 5.06 percent. The other is a TIPS that pays 3 % interest annually.

a) If inflation remains constant at 2 % annually over the next 5-years, what will be Judy’s annual interest income from the TIPS bond? From the Treasury note?

b) How much interest will Judy receive over the 5-years from the Treasury note? From the TIPS?

c) When each bond matures, what par value will Judy receive from the Treasury note? The TIPS?

d. After 5-years, what is Judy’s total income (interest + par) from each bond? Should she utilize this total as a way of deciding which bond to purchase?

problem 2: Suppose that a $1,000 face value bond has a coupon rate of 8.5 percent, pays interest semi-annually, and has an 8-year life. If investors are willing to accept a 10.25 % rate of return on bonds of similar quality, what is the present value or worth of this bond?

problem 3: The Garcia Company’s bonds have a face value of $1,000, will mature in 10-years, and carry a coupon rate of 16 %. Suppose interest payments are made semi-annually.

a) Find out the present value of the bond’s cash flows if the required rate of return is 16.64 %.

b) How would your answer change if the required rate of return is 12.36 %?

problem 4: Mercier Corporation’s stock is selling for $95. It has just paid a dividend of $5 s share. The expected growth rate in dividends is 8 %.

a) Find out the required rate of return on this stock?

b) By using your answer to (a), assume that Mercier announces developments that should lead to dividend increases of 10 % annually. What will be the new value of Mercier’s stock.

c) Again by using your answer to (a), suppose developments take place that leave investors expecting that dividends will not modify from their current levels in the foreseeable future. Now what will be the value of Mercier stock?

d) From your answers to (b) and (c), how significant are investor's expectations of future dividend growth to the current stock price?

problem 5: Given the information below, compute annualized returns:

41_annualized returns.jpg

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M91316

Have any Question? 


Related Questions in Basic Finance

1 what is meant by a sale-leaseback why would a building

1. What is meant by a sale-leaseback? Why would a building investor want to do a sale-leaseback of the land? What is the benefit to the party that purchases the land under a sale-leaseback? 2. Why might an investor prefe ...

One bond has 9 years until maturity and a coupon of 42 the

One bond has 9 years until maturity and a coupon of 4.2%. The coupon is paid semiannually. If the YTM is 6%, what is the value of this bond? There is another bond with 15 year to maturity with a coupon rate of 6%. This c ...

How many variance and covariance terms does the expression

How many variance and covariance terms does the expression of variance on a 5 asset portfolio have?

Internationalization of human resources at obirenowned for

Internationalization of human resources at OBI Renowned for its orange big box stores, OBI is one of the leading DIY/home improvement retail brands in Europe. Founded in Germany in 1970, the company currently operates ab ...

Black hill inc sells 100 million worth of 27-year to

Black hill inc. sells $100 million worth of 27-year to maturity 10.81% annual coupon bonds. the net proceeds (proceeds after flotation costs) are $975 for each $1000 bond. What is the before tax cost of capital for this ...

1 what kinds of organizations must consider disaster

1. What kinds of organizations must consider disaster preparedness? 2. What is the difference between mitigation and preparedness? 3. What are the steps involved in the preparedness cycle? 4. Name the ways that the Natio ...

1 the vinyl cd co is going to take on a project that is

1. The Vinyl CD Co. is going to take on a project that is expected to increase its EBIT by $80,000, its fixed cost cash expenditures by $125,000, and its depreciation and amortization by $75,000 next year. If the project ...

What is float what are its four basic components which of

What is float? What are its four basic components? Which of these components is the same from both a collection and a payment perspective? What is the difference between availability float and clearing float, and from wh ...

Which of the following would be a wash sale explaina you

Which of the following would be a wash sale? Explain. a. You buy a stock at $30. Three weeks later, you sell the stock at $26. Two weeks later, you buy a call on the stock. b. You buy a stock at $40. One month later, you ...

What is the difference between a pure discount bond and a

What is the difference between a pure discount bond and a bond that trades at a discount? If issuers successfully sell pure discount bonds in the market, investors must want them. Can you explain why any bond purchaser m ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro