Reference no: EM132240796

Question: Your response should be four (4) pages in length.

Respond to the items below.

Part A: Moore Company is about to issue a bond with semiannual coupon payments, a coupon rate of 8%, and par value of $1,000. The yield-to-maturity for this bond is 10%.

a. What is the price of the bond if the bond matures in 5, 10, 15, or 20 years?

b. What do you notice about the price of the bond in relationship to the maturity of the bond?

Part B: The Crescent Corporation just paid a dividend of $2 per share and is expected to continue paying the same amount each year for the next four years. If you have a required rate of return of 13%, plan to hold the stock for four years, and are confident that it will sell for $30 at the end of four years, how much should you offer to buy it at today?

Part C: Use the information in the following table to answer the questions below:

State of Economy     Probability of State    Return on A in State    Return on B in State   Return on C in State

Boom                              .35                         0.040                          0.210                        0.300

Normal                            .50                         0.040                          0.080                         0.200

Recession                        .15                         0.040                         -0.010                       -0.260

a. What is the expected return of each asset?

b. What is the variance of each asset?

c. What is the standard deviation of each asset?