BUSN
379 Week 2 Homework Chapter 4 Questions: 8, 17 & 18 Updated 2016
BUSN 379 Week 2 Homework Chapter 4
Questions: 8, 17 & 18 Updated 2016
Chapter 4
Questions: 8, 17 & 18
- Coupon Rates.Volbeat Corporation has bonds on the
market with 10.5 years to maturity, a YTM of 8.4 percent, and a current
price of $945. The bonds make semiannual payments. What must the coupon
rate be on the bonds?
- Bond Yields. PK Software has 7.5 percent coupon bonds
on the market with 22 years to maturity. The bonds make semiannual
payments and currently sell for 97 percent of par. What is the current
yield on PK’s bonds? The YTM? The effective annual yield?
- Interest Rate Risk. Bond J has a coupon rate of 4
percent. Bond S has a coupon rate of 14 percent. Both bonds have 10 years
to maturity, make semiannual payments, and have a YTM of 8 percent. If
interest rates suddenly rise by 2 percent, what is the percentage price
change of these bonds? What if rates suddenly fall by 2 percent instead?
What does this problem tell you about the interest rate risk of
lower-coupon bonds?
Chapter 5 (Questions 1, 4, and 12)
Present Value and Multiple Cash Flows. Rooster Co. has identified an investment project with the following cash flows. If the discount rate is 10 percent, what is the present value of these cash flows? What is the present value at 18 percent? At 24 percent?
Present Value and Multiple Cash Flows. Rooster Co. has identified an investment project with the following cash flows. If the discount rate is 10 percent, what is the present value of these cash flows? What is the present value at 18 percent? At 24 percent?
4. Calculating Annuity Present
Values. An investment offers $6,700 per year for 15 years, with the first
payment occurring 1 year from now. If the required return is 8 percent, what is
the value of the investment? What would the value be if the payments occurred
for 40 years? For 75 years? Forever?
12. Calculate EAR. Find the EAR in
each of the following cases.
Chapter 5 (1,4,12)
• Present Value and Multiple Cash
Flows. Rooster Co. has identified an investment project with the following cash
flows. If the discount rate is 10 percent, what is the present value of these
cash flows? What is the present value at 18 percent? At 24 percent?
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