Reference no: EM132689460

Provide full calculations and explanations for all questions

1) The PK Company issued a 20-year annual pay bond 2 years ago. The face value of the bond is $1,100 and the coupon rate is 4%. The bond's current price is $1175. Calculate the YTM.

2) What is interest rate risk? Assume that you were just awarded your lifetime dream job as a corporate bond fund manager...ever since you were four years old, you dreamed of one day managing a bond fund. Your first day on the job, an analyst sent you an email indicating that interest rates are very likely to drop within the short term. You currently manage bonds worth a total of $130 million. Based on this forecast, what should you change within the portfolio?

3) Bob bought an investment one year ago and just recently calculated his return on investment. He found that purchasing power has increased by 15% as a result of his investment. If inflation over the period was 4% what was the exact nominal return? What was the approximate nominal return? Discuss - why is either of these calculations important?

4) A company's most recent dividend was $1.92 per share. The company's CFO believes that the dividend will grow at a rate of 12% for the next 3 years, levelling off to a perpetual growth rate of 4% thereafter. If the required return is 9%, what should the current stock price be?

5) The CH company has A and B shares. The A shares have voting rights of 10 votes per share but will never pay a dividend. The B shares carry voting rights of one vote per share, and they pay dividends whenever declared by the board. Which shares would likely have a higher price? Why?

6) Cal Builders and YYC Contruction have both submitted bids for the construction of a new apartment building. The two companies based their bids on identical blueprints. Both firms have been building apartments in Calgary for many years. Explain how the two firms submitted very different bid prices.