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exam1310

# exam1310 - EXAM 1 MGMT 310 1 You have a bond maturing in 10...

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EXAM 1 MGMT 310 1. You have a bond maturing in 10 years whose price is 950 \$, the coupon is 4.5 % per year paid once a year. Calculate the YTM, also, calculate the YTM supposing infinite life and compare the two results. YTM = 5.15%, infinite life = 4.7%

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2. You have a stock whose price is 17 [\$/share] and the original dividend is 0.1 [\$/share] a. Calculate the discount rate assuming infinite life and no dividend growth for the stock b. Calculate the dividend growth if the discount rate is 9 % per year a) discount rate = 0.00588, or 0.58% b) dividend growth = 0.0841
3. When the interest rates were at 4.75% per year, some people bought corporate bonds offering a 5 % coupon and maturing in 20 years. Today, a year later, the interest rates are at 2% per year. Calculate the return that these persons could get if they sold the bond today, use the interest rates given to calculate the prices.

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Unformatted text preview: Original price 1031.8, price after 1 year = 1470.3, return = 0.424 4. Fast and easy questions a. Why the ‘accounting earnings’ are not used to compute the value of a firm? b. The loss in value suffered by the stocks in the last weeks, did it happen in the primary or secondary markets? c. If the bailout increases inflation, will the price of the bonds increase or decrease, explain? Formulas Price of a stock with initial dividend Div, dividend growth g and discount rate r g r Div P-= Price of a bond N N N r F r r r c p ) 1 ( ) 1 ( ) 1 ) 1 (( + + +-+ = Where c is the coupon, N is the number of years, r is the YTM, F is the face value and p is the price Relationship between real and nominal rate and inflation r = R + π Return 1 P P P-...
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• Spring '08
• 5 %, 2%, 4.7%, 4.5 %, 4.75%

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