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quiz2 - is priced such that the yield to maturity is 7 What...

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Econ 134a Summer 2007 Quiz 2 Name: Enrolled Section: 9.30 or 12.30 1. As the prices of bonds get bid down, what happens to the yield to maturity? (a) Nothing, as the yield is fixed upon issuance of the bond (b) Increases (c) Decreases (d) Depends on the term to maturity 2. Pacific Gas and Electric pays dividends every six months. The next dividend, due in six months, is \$2 and is expected to grow at 2% (per six months). If the appropriate APR at which to discount the company is 10%, what is the (approximate) current stock price? 3. One year ago, you bought at par (face value) a 5 year, \$1,000 face-value bond with annual coupons of 8%.

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Unformatted text preview: is priced such that the yield to maturity is 7%. What is your approximate capital gain/loss (price today + dividend(s) - price paid)? (a) \$10 (b) \$80 (c) \$111 ; Price Today = 80 A 4 . 07 + 1000 / (1 . 07) 4 ≈ 1033. 1033 + 80 - 1000 = 113. (d) \$174 *** I’m throwing out this problem. The deﬁnition provided for capital gain is incorrect. The correct deﬁnition is “price today - price paid”. Helpful formulae: • Net Present Value = C + ∑ T t =1 C t (1+ r ) t • Annuity: PV = C r ‡ 1-1 (1+ r ) t · • Growing Perpetuity = C r-g...
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quiz2 - is priced such that the yield to maturity is 7 What...

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