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G. Welch purchases a corporate bond that was originally issued for $1,000 several years ago. The bond has four years remaining until it matures, the market price now is $1,054.45, and the yield to maturity (YTM) is 4 percent. The bond pays an annual coupon of $55, with the next payment due in one year.
a. What is the bond's coupon rate? Its coupon yield?
b. Suppose Welch holds this bond for one year and the YTM does not change. What is the total percentage return on the bond? Show that on a percentage basis, the total return is the sum of the interest and capital gain/loss components.
c. If the yield to maturity decreases during the first year from 4 percent to 3.5 percent, what is the total percentage return that year?
A stock price is currently $80. It is known that in 4 months it will be either $75 or $85. The risk-free interest rate is 5% per year with continuous compounding. Consider a 4-month European call option with a strike price of $80. Compute the risk-ne..
(Individual or component costs of capital) Compute the cost of capital for the firm for the following: A new common stock issue that paid a $1.85 dividend last year. The firm's dividends are expected to continue to grow at 7.7 percent per year, forev..
It represents the most recent years operations, which ended yesterday. Your Supervisor in the controller’s office has just handed you a memorandum asking for written responses to the following questions: If sales should increase by 25%, by what perce..
The expected return on the market portfolio equals 12%. The current risk-free rate is 6%. What is the expected return on a stock with a beta of 0.66?
Vickie’s house was destroyed by a tornado that passed through her town. She was covered by a standard homeowner’s policy. Vickie must fulfill all of the following duties as a precondition of receiving benefits EXCEPT:
Review the management job descriptions for each of the restaurants above and describe the differences and similarities among the restaurant groups and compare them with those discussed in the textbook.
Assuming lags in the AE and Phillips curves, can the central bank keep output and inflation constant? If it can, explain how;
A stock has a beta of 1.10, the expected return on the market is 12 percent, and the risk-free rate is 3.6 percent. What must the expected return on this stock be?
CathFoods will release a new range of candies which contain anti-oxidants. New equipment to manufacture the candy will cost $2 million, which will be depreciated by straight-line depreciation over five years. what are the incremental earnings in the ..
Weston Corporation had earnings per share of $1.41, depreciation expense of $592,800, and 240,000 shares outstanding. What was the operating cash flow per share? If the share price was $51, what was the price-cash flow ratio?
A broker offers to sell you shares of Bay Area Healthcare, which just paid a dividend of $2 per share. The dividend is expected to grow at a constant rate of 5 percent per year. The stock's required rate of return is 12 percent. What is the expected ..
The forecast for Company B stock dividends for the next three years is: D1 = $1.25; D2 = $1.85; D3 = $2.50. The forecast price of a share in three years of $75.00. The rate of return for similar-risk common stocks is 12%. What is the value today of C..
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