Winter 2011 - Homework 4

Winter 2011 - Homework 4 - E ngineering 111 Winter 2011...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: E ngineering 111 Winter 2011 Assignment #4 Bond and Stock Valuation I nst ructions: Submit the file through Courseweb with your name and student ID as the document title (i.e. Joe_Bruin_1020203.doc or Joe_Bruin_1020203.pdf). You must follow this convention to receive full credit. You must also show all your work for any questions that require calculations. Back Story: "Get r ich quick!", "I'll give you ten of the HOTTEST PENNY STOCKS THAT WIL L MAKE YOU A M I L L IONARE OVERNIGHT". You're bombarded daily by spam in your inbox that makes p romises of fame, fortune, and financial security. What these t r icksters fail to realize is that you're a graduate of the King-Bristow school of finance. Sound financial decisions require looking a t the data, running calculations, and doing your homework! You clear out the spam emails and look at a summary of a client's portfolio. You know you can do some optimization work on this portfolio. And it'll take more work than listening to the hot s tock p icks of a crazy email. Assignment: [1] Your client is currently the holder of a zero-coupon corporate bond with a face value of $1000, 5 years to maturi ty, and a yield to maturi ty of 7%. At what price is the bond t rading? [2] You decide to call the corporate bond t rader at your company’s headquar ters. The t rader quotes a semiannual corporate bond with 10 years to matur ity and a $1000 face value has a 10% coupon. The issuer’s rating has just been upgraded and the bond is t rading at $1050. What is the y ield to maturi ty on this bond? [ 3] A fter screening through hundreds of stocks, you narrow down your choices to stock XYZ. Stock X YZ has EPS of $2.50 and a retention ratio of 70%, with an expected earnings growth rate of 3% annually. Given the results from [1] and [2], what discount rate would you use? What is the value of XYZ based on dividends alone? ...
View Full Document

This note was uploaded on 03/28/2011 for the course ENGR 110 taught by Professor . during the Winter '10 term at UCLA.

Page1 / 2

Winter 2011 - Homework 4 - E ngineering 111 Winter 2011...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online