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What is the price of the bond if the bond matures

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Reference no: EM131059452

Directions: Be sure to save an electronic copy of your answer before submitting it to Ashworth College for grading. Unless otherwise stated, answer in complete sentences, and be sure to use correct English, spelling, and grammar.

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 4 years. If you have a required rate of return of 13%, plan to hold the stock for 4 years, and are confident that it will sell for $30 at the end of 4 years, how much should you offer to buy it at today?

Part C: Use the information inthe 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?

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This assignment deals with calculated the bond prices across maturities and identifying the relationship between the bond price and maturity. In addition, there is also a risk-return analysis where-in the expected return of various assets needs to be figured out based on the probabilistic scenario and also finding out the variance and standard deviation of such returns.

Reference no: EM131059452

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