BUS 323
Fin. Mgt.
EXAM 2 in class
NAME____________________________
Dr. G
Spring 2004
1.
(8 points) A General Motors bond has a par value of $1000 and matures in 13 years. The
coupon rate is 12 percent, and interest is paid semiannually. If an investor in similar bonds
wants to earn a 10 percent annual yield to maturity:
a.
What is the price at which this GM bond should be selling on the market?
price= $1143.75 or
114.375% of par
b.
Is it a premium or discount bond? Explain!
bond is selling at premium, ytm less than coupon
2.
(8 points) The XYZ bond was quoted in the newspaper at a price of 101 1/8.
The bond has a
par value of $1000 and pays an 8.7 % coupon rate, semiannually.
a.
What is the dollar price that an investor would pay to buy the bond?
$ 1011.25
b.
What is the current yield for the bond?
8.60%
3.
(8 points) If the risk free rate is 3.8% and the market risk premium is 4.6%,
a.
What is the expected return for the overall stock market?
3.8 + 4.6 = 8.4%
b.
What return should common stockholders expect to receive if the XYZ company has a
Beta of 0.45
?
k = 3.8 + 0.45 * 4.6
=
5.87%
Multiple choice (2 points each)
1.
If the expected rate of return on a stock exceeds the required rate,
a.
The stock is experiencing supernormal growth.
b.
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 Spring '10
 RAYMOND
 Interest, Dividend yield, Stock Y

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