Curtis bought an 8.5% annual coupon bond at par. One year later, he sold the bond...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Curtis bought an 8.5% annual coupon bond at par. One year later, he sold the bond at a quoted price of 98. During the year, market interest rates rose and inflation was 3%. What real rate of return did Curtis earn on this investment? Answer: 3.40% 2. Sara wants to buy a zero coupon bond that will pay her $1,000 ten years from today. How much should Sara pay today to buy this bond if she wants to earn 7.5% on her investment? Answer: $485.19 Bradley Broadcasting expects to pay dividends of $1.10, $1.21, and $1.331 in one, two, and three years, respectively. After that, dividends are expected to grow at a constant rate of 4% forever. Stocks of similar risk yield 10%. 3. The price of Bradley Broadcasting stock today should be? Answer: $20.33 4. What is growth rate of the Bradley Broadcasting dividend during year 2? Answer: 10% 5. How much is Bradley's stock price expected to increase during the first year? Answer: 4.59% 6. Suppose the Pale Hose Corp. is expected to pay a dividend next year of $1.75 per share. Both sales and profits for Pale Hose are expected to grow at a rate of 15% for the following two years and then at 2% per year thereafter indefinitely. Dividend growth is expected to match sales growth. If the required return is 14%, what is the value of a share of Pale Hose? Answer: $17.92 7. In order to help you through college, your parents just deposited $25,000 into a bank account paying 8% interest. Starting tomorrow, you plan to withdraw equal amounts from the account at the beginning of each of the next four years. What is the MOST you can withdraw annually? Answer: $6,988.91 8. Moe purchases a $100, 30-year annuity. Larry purchases a $100 perpetuity. In both cases, payments begin in one year, and the appropriate interest rate is 10%. What is the present value of Larry's payments that will occur from year 31 onwards? Answer: $57.31 9. Your recently departed rich, eccentric uncle has left for you in his will a large sum of money. Unfortunately, rather than give you this sum of money immediately, he has instructed the executor of the will to pay you $10,000 in one year. This payment is to grow by 9% each year and to be made each year forever. If the appropriate discount rate is 10%, how much have you actually inherited? Answer: $1,000,000 10. Strapped for cash, your neighbour makes you the following offer. He will pay you back the money he borrows today over the next 10 years. He will make yearly payments with the first payment being for $1,000 at the end of this year. The payments will grow by 10% every year thereafter. If the appropriate discount rate is 12%, how much would you be willing to lend your neighbour today? Answer: $8.244.22 Curtis bought an 8.5% annual coupon bond at par. One year later, he sold the bond at a quoted price of 98. During the year, market interest rates rose and inflation was 3%. What real rate of return did Curtis earn on this investment? Answer: 3.40% 2. Sara wants to buy a zero coupon bond that will pay her $1,000 ten years from today. How much should Sara pay today to buy this bond if she wants to earn 7.5% on her investment? Answer: $485.19 Bradley Broadcasting expects to pay dividends of $1.10, $1.21, and $1.331 in one, two, and three years, respectively. After that, dividends are expected to grow at a constant rate of 4% forever. Stocks of similar risk yield 10%. 3. The price of Bradley Broadcasting stock today should be? Answer: $20.33 4. What is growth rate of the Bradley Broadcasting dividend during year 2? Answer: 10% 5. How much is Bradley's stock price expected to increase during the first year? Answer: 4.59% 6. Suppose the Pale Hose Corp. is expected to pay a dividend next year of $1.75 per share. Both sales and profits for Pale Hose are expected to grow at a rate of 15% for the following two years and then at 2% per year thereafter indefinitely. Dividend growth is expected to match sales growth. If the required return is 14%, what is the value of a share of Pale Hose? Answer: $17.92 7. In order to help you through college, your parents just deposited $25,000 into a bank account paying 8% interest. Starting tomorrow, you plan to withdraw equal amounts from the account at the beginning of each of the next four years. What is the MOST you can withdraw annually? Answer: $6,988.91 8. Moe purchases a $100, 30-year annuity. Larry purchases a $100 perpetuity. In both cases, payments begin in one year, and the appropriate interest rate is 10%. What is the present value of Larry's payments that will occur from year 31 onwards? Answer: $57.31 9. Your recently departed rich, eccentric uncle has left for you in his will a large sum of money. Unfortunately, rather than give you this sum of money immediately, he has instructed the executor of the will to pay you $10,000 in one year. This payment is to grow by 9% each year and to be made each year forever. If the appropriate discount rate is 10%, how much have you actually inherited? Answer: $1,000,000 10. Strapped for cash, your neighbour makes you the following offer. He will pay you back the money he borrows today over the next 10 years. He will make yearly payments with the first payment being for $1,000 at the end of this year. The payments will grow by 10% every year thereafter. If the appropriate discount rate is 12%, how much would you be willing to lend your neighbour today? Answer: $8.244.22
Expert Answer:
Related Book For
Posted Date:
Students also viewed these finance questions
-
Steel Corporation is facing uncertainty for the coming year. Economists estimate that a good business environment and a bad business environment are equally likely. Managers of Steel Corporation must...
-
KYC's stock price can go up by 15 percent every year, or down by 10 percent. Both outcomes are equally likely. The risk free rate is 5 percent, and the current stock price of KYC is 100. (a) Price a...
-
The control features of a bank account do not include: (a) having bank auditors verify the correctness of the bank balance per books. (b) minimizing the amount of cash that must be kept on hand. (c)...
-
A layer of ice has formed on a small pond. The air just above the ice is at -5.4 C, the water-ice interface is at 0 C, and the water at the bottom of the pond is at 4.0 C. If the total depth from the...
-
The three accounts shown below appear in the general ledger of Chaudry NV during 2020. Instructions From the postings in the accounts, indicate how the information is reported on a statement of cash...
-
Define a condenser.
-
The 2011 and 2012 financial statements of Ken's Sportswear follow: a. Compute all relevant ratios for 2012.b. Prepare common-size financial statements.c. Evaluate the company's financial performance...
-
Zoe Corporation has the following information for the month of March: Cost of direct materials used in production $18,132 Direct labor 24,624 Factory overhead 35,790 Work in process inventory, March...
-
Suppose you are central bank governor of a country which is experiencing inflation of 100% per month. You have two economic advisors. One advisor tells you that in order to increase seignorage you...
-
A contract requires end-of-month payments of $245 for another 8 1/4 years. What would an investor pay to purchase this contract if she requires a rate of return of 1.8% compounded monthly? (Do not...
-
Assume a corporation' s bond has 10 years remaining until maturity . The bond has a $1,000 face value and a 6% coupon rate each year. Other investments meeting the same criteria must provide annual...
-
1. What is the lower bound for the price of a 3-month European call option on a non-dividend paying stock when the stock price is $100, the strike price is $90, and the risk-free interest rate is 5%...
-
Suppose that many people choose between becoming nurses and becoming occupational therapists. The wages of nurses have risen dramatically since the COVID-19 pandemic. How will this affect the wages...
-
Predict the output of this Java code: public class Driver { public int x = 0; public static int y = 0; public static void main(String[] args) { Driver dl new Driver(); Driver d2 = new Driver();...
-
Chandni & Co. opened their first restaurant location in 2012 in Lahore. The restaurant has since expanded its operation and at the end year end December 2020 they operate a total of six...
-
Banner Company acquires an 80% interest in Roller Company for $640,000 cash on January 1, 2013. The NCI has a fair value of $160,000. Any excess of cost over book value is attributed to goodwill. To...
-
Support tranches are most appropriate for investors who are: A. Concerned about their exposure to extension risk. B. Concerned about their exposure to concentration risk. C. Willing to accept...
-
Based on Exhibit 1, which bond most likely has the highest liquidity premium? A. Bond 1 B. Bond 2 C. Bond 3 Celia is chief investment officer for the Topanga Investors Fund, which invests in equities...
-
An institutional client asks a fixed-income investment adviser to recommend a portfolio to immunize a single 10-year liability. It is understood that the chosen portfolio will need to be rebalanced...
-
Vigilance Inc. provides secret shopping services to assist other companies in quality control. Vigilance has just been awarded a contract by Freshway Supermarkets to monitor the customer service...
-
VitaComp manufactures nonpharmaceutical pills and pellets from dry ingredients, using a collection of machinery it maintains in a large job shop. Machine AA-23 molds circular pellets to an average...
-
How could bottleneck management's recommendations concerning the distinction between activation and utilization relate to personal time management?
Study smarter with the SolutionInn App