final1 - PRACTICE FINAL#1 Honors Corporate Finance Student...

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PRACTICE FINAL #1 Honors Corporate Finance Student Name: INSTRUCTIONS 1. There are 8 questions on the exam for a total of 75 points 2. For full credit on a question, please show your work and write the answer in the space provided. Please use the back of the page if you need additional space. Remember: Read each question carefully. The questions are not in order of difficulty. If you get stuck, just go on to the next question. 1
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1. (8 pts) Suppose that a 1-year, zero-coupon bond has a price of $96.15 per $100 of face value. A 2-year, zero-coupon bond has a price of $90.70 per $100 of face value. A 3-year zero-coupon bond has a price of $85.16 per $100 of face value. Throughout this problem, assume annual compounding. (a) (2 pts) What is the annual rate you can lock in now for lending between years one and two? Note that “year one” is next year, while “year two” is two years from now. (b) (2 pts) What is the annual rate you can lock in now for lending between years two and three? (c) (4 pts) Calculate the price of an annual coupon bond with a coupon rate of 5% and a face value of $1000, with 3 years to maturity. 2
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2. (5 pts) You purchased 200 shares of stock LOR on January 1, 2000 for $15 each. The following table shows the price per share and the dividend per share for the next four years. Assume dividends are paid at the end of the year (for example, LOR sold for a price of $16 and paid a dividend of $2 on December 31, 2000).
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