1) 2 twenty-year old bonds are the same in all respects except that 1 permits the issuer to call bond in return for= $1,000 cash at any time after 5 years whereas other contains no call provisions. Will the yield to maturity on two bonds vary? If so, which will be higher?
2) Information about 3 securities given below.
Beginning-of-year price End-of-year Price Interest/dividend paid
Stock 1 $42.50 $46.47 $1.50
Stock 2 $1.25 $1.36 $0.00
Stock 3 $1,020 $1,048 $41.00
i) Suppose interest and dividends are paid annually, compute the annual holding period return on each security.
ii) In the year, management of Stock 2 spent $10 million, or $0.50 per share, repurchasing 7.7million of company’s shares. How if at all, does this information affect computation of holding period return on Stock 2?
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