Problem 1. a) You own a bond that pays $125 yearly in coupon interest and that...

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Problem 1. a) You own a bond that pays $125 yearly in coupon interest and that will mature in 2 years with face value $1500 (it pays coupon in that year too). What is the price of your bond now, if the appropriate rate of return for this asset is 4.5%? b) Your broker has advised you to buy shares of Fast repair computer repair shop, which has paid a dividend of $2 per share annually and will (according to the broker) continue to do so for many years. The stock is currently priced at $18 You have good reason to think that the appropriate rate of return for this stock is 13% per year. Is the stock's present price a good approximation for the true financial value? What would you like to pay for the share and should you buy or sell now? you c) Assume I have a 4% coupon bond, which matures in 12 years and has a principal of $1,000, what is the price of this bond if rate of return is 2%? If the rate of return increases, will the price of the bond go up or down? Explain. Problem 1. a) You own a bond that pays $125 yearly in coupon interest and that will mature in 2 years with face value $1500 (it pays coupon in that year too). What is the price of your bond now, if the appropriate rate of return for this asset is 4.5%? b) Your broker has advised you to buy shares of Fast repair computer repair shop, which has paid a dividend of $2 per share annually and will (according to the broker) continue to do so for many years. The stock is currently priced at $18 You have good reason to think that the appropriate rate of return for this stock is 13% per year. Is the stock's present price a good approximation for the true financial value? What would you like to pay for the share and should you buy or sell now? you c) Assume I have a 4% coupon bond, which matures in 12 years and has a principal of $1,000, what is the price of this bond if rate of return is 2%? If the rate of return increases, will the price of the bond go up or down? Explain.

Answer rating: 100% (QA)

a Calculation of bond price Given Coupon payment 125 Face value 1500 Years to maturity 2 Discount ra... View the full answer