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Unformatted text preview: SOLUTIONS TO HW #1 PROBLEMS CHAPTER 2: ASSET CLASSES AND FINANCIAL INSTRUMENTS SOLUTIONS TO PROBLEM SETS 5. a.You would have to pay the asked price of: 118:31 = 118.96875% of par = $1,189.6875 b. The coupon rate is 11.750% implying coupon payments of $117.50 annually or, more precisely, $58.75 semiannually. c. Current yield = Annual coupon income/price = $117.50/$1,189.6875 = 0.0988 = 9.88% 6. P = $10,000/1.02 = $9,803.92 8. a.General Dynamics closed today at $74.59, which was $0.17 higher than yesterday’s price. Yesterday’s closing price was: $74.42 b. You could buy: $5,000/$74.59 = 67.03 shares c.Your annual dividend income would be: 67.03 × $0.92 = $61.67 d. The pricetoearnings ratio is 16 and the price is $74.59. Therefore: $74.59/Earnings per share = 16 ⇒ Earnings per share = $4.66 11. The aftertax yield on the corporate bonds is: 0.09 × (1 – 0.30) = 0.0630 = 6.30% Therefore, municipals must offer at least 6.30% yields....
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 Spring '10
 IsseyTeh
 Old Economy Traders, Municipals

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