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Lance Whittingham IV specializes in buying deep discount bonds. These represent bonds that are trading at well below par value. He has his eye on a bond issued by the Leisure Time Corporation. The $1,000 par value bond pays 4 percent annual interest and has 18 years remaining to maturity. The current yield to maturity on similar bonds is 14 percent.
(a) What is the current price of the bonds?
(b) By what percent will the price of the bonds increase between now and maturity?
(c) What is the annual compound rate of growth in the value of the bonds? (An approximate answer is acceptable.)
Kayla is in the 28% federal income tax bracket and the 5% state income tax bracket. If Jennifer purchases a municipal bond yielding 4.25%, what is the equivalent yield on a taxable bond if the municipal bond income is exempt from both federal and sta..
Why is it sometimes misleading to compare a company’s financial ratios with those of other firms that operate in the same industry?
The James Company has issued bonds that have a 6.75% coupon rate and a par value of $1,000. The coupon amount is payable annually in arrears. The bonds mature 17 years from now. If the bonds’ yield-to-maturity is 7.15%, what is the current market pri..
A stock is expected to pay dividends of $1.00, $0.75 and $2.00 for the next 3 years, respectively. After that time, dividends are expected to grow at a constant rate of 3% indefinitely. The required return on the stock is 10%. What proportion of this..
You are bullish on Telecom stock. The current market price is $48 per share, and you have $9,600 of your own to invest. You borrow an additional $9,600 from your broker at an interest rate of 3.0% per year and invest $19,200 in the stock. What will b..
Which of the following statements is correct regarding the law of large numbers?
The Carpentry Shop has sales of $398,600, costs of $254,800, depreciation expense of $23,400, interest expense of $1,200 and a tax rate of 30 percent. What is the net income for this firm? The Next Life has sales of $450,000, total assets of $150,000..
United Air has a 8.7% coupon 20 year bond (par value = $1,000). Assume that coupon payments are semi-annual and that the current price is $980.50. What is the yield-to-maturity of this bond? Be sure to report on an annualized basis
Your grandparents put $50,000 into a bank account earning 7.2%. You can’t withdraw the money until the balance has doubled. How long will you have to leave the money in the account (to the nearest whole year)? a. 9 years b. 10 years c. 12 years d. 15..
A 20 year bond with an annual coupon of 10% has a duration of 10 years and a convexity of 136. The YTM of the bond decreases from 8% to 7%. What is the actual percent change in bond price? What is the duration approximation of the percent change in b..
Determine the expected return and standard deviation of returns for a portfolio of 90 securities and explain what is meant by naïve diversification
Which of the following is NOT a characteristic of money market instruments?
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