Find the ytm and what is its roe, Finance Basics

1. Find the price of the following bonds. They are all risk-free, and the risk-free rate is 10%.

(a) A fifteen-year zero coupon bond with face value $1,000.

(b) A three year semiannual-pay 6% coupon bond with face value $500.

2. Find the YTM of the following bonds. Be careful to report the YTM as an APR with appropriate compounding. These are not the same bonds as in question 1.

(a) A fifteen-year zero coupon bond with face value $1,000 and price $300. Use annual compounding for the YTM.

(b) A three year semiannual-pay 6% coupon bond with face value $500 and price $400. You will need to solve this in Excel using trial and error.

3. A one-year semiannual pay 10% coupon bond has a price of $100 and a face value of $100. Recall from class that when price=par value, YTM=coupon rate. I buy the bond today and hold it to maturity. I will reinvest the coupon I receive in six months in a bank account that pays a certain rate. I close out my investment in the bank account on the day the bond matures. What is my HPR if the rate at which I reinvest the coupon is (a) 10% (b) 4% (c) 16%? All rates are quoted as APRs with semiannual compounding.

What can you conclude about the relationship between YTM and HPR for a coupon bond that is held to maturity?

Guide: For each case, find the total dollar amount you will have at the end of the year.

The HPR is the total amount you get at the end of the year divided by the amount you paid to buy the bond (minus 1). Before comparing the HPR with the YTM make sure that they are both APRs with the same compounding frequency or both effective rates over the same period.

4. A company had net income of $20,000 this year on equity of $100,000 last year. Its ROE is expected to be constant. Answer the following questions:

(a) What is its ROE?

(b) The company retains 40% of its earnings. What are earnings next year expected to be? What are dividends next year expected to be?

(c) What is the growth rate of earnings? What is the growth rate of dividends?

(d) The beta of the returns on the stock has been 1. The risk-free rate is 5% and the return on the market is expected to be 10%. What is the discount rate (OCC) on the company's stock?

(e) The company has 20,000 shares outstanding. What should the price per share be today?

Posted Date: 3/6/2013 2:06:27 AM | Location : United States







Related Discussions:- Find the ytm and what is its roe, Assignment Help, Ask Question on Find the ytm and what is its roe, Get Answer, Expert's Help, Find the ytm and what is its roe Discussions

Write discussion on Find the ytm and what is its roe
Your posts are moderated
Related Questions
1-Suppose you deposit $ 5 000 in the bank. How much can you raise after 10 years when discount rate is 5% for the first four years and then rises to 7% annually? 2 -A used car co

Asset Based Valuation  This method acquires into account the entire business along with reference to its assets and then divides the resultant value via the number of shares i

Solutions - Shareholders and Management Conflict Conflicts between management and shareholders may be resolved as follows like: 1. Pegging or attaching managerial compens

Describe how society's interests can influence financial managers. Occasionally the interests of a business firm's owners are not similar as the interests of society.  For exam

What is the Objectives of Listing Objectives of listing are mainly to: (i) Provide liquidity to securities. (ii) Mobilize savings for economic growth. (iii) Protect

Example of Conversion Ratio and Conversion Price ABC Company Ltd books as:   10.000, Sh.20 ordinary share capital 10,000, Shs.10 8% preference share c


If Metropolis Healthcare Systems have 1,150,000 in cash. How long will it take them to accumulate 2,000,000 in cash? Assume an interest rate of 5%..

Functions of the Stock Exchange The essential function of a stock exchange is the raising of funds for investment in long-term assets. Whereas this basic function is very sign

#The following is the existing capital structure of Company XYZ Ltd. Ordinary shares at Shs.10 par 1,000,000 Retained 800,000 12% preference shares Shs.10 par 400,000 16% loan Shs.