Homework 2

Homework 2 - Michael Samuels 2/22/10 Wilson Homework 2 1....

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Michael Samuels 2/22/10 Wilson Homework 2 1. N: 20 I: 2.5 FV : 10,000,000 PMT: 300,000 P = $10,779,458.11 2. In order to make money on this bond I would set the price at $662.48 or higher N: 540 I: 4/12 PV: 0 FV: 1,000,000 PMT: 662.484 3. NPV(1.5,-4000, {1000,1000,1000,1000,1000,1000,1000,1000}) NPV = $3,485.92 IRR(-4000,{1000, 1000,1000,1000,1000,1000,1000,1000} IRR = 18.62% 4. I would not purchase the stock under either circumstance as the price of the stock is way overvalued. Price at 10% = 1.35 * 1.1 / (.18-.1) = 18.5625 Price at 12% = 1.35 * 1.12/ (.18-.12) = 25.2 Price = Dividend / Rate - Growth 5. Please answer the following questions, a. What is a callable bond? A callable bond is a bond where the issuer of the bond has the right to buy back the bond at an earlier time at a lower price due to rising interest rates of the bond. b. When would a bond be called ? When the interest rate of the bond is higher than the market the bong could be called.
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Michael Samuels 2/22/10 Wilson Homework 2
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This note was uploaded on 10/20/2010 for the course FINA 127 taught by Professor Arthurj.wilson during the Spring '10 term at GWU.

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Homework 2 - Michael Samuels 2/22/10 Wilson Homework 2 1....

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