e1f09 - Name: Student ID: Section: AP/ADMS 4540 Financial...

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1 Name: Student ID: Section: AP/ADMS 4540 Financial Management Fall 2009 Exam 1 Instructor: Dr. William Lim Time Limit: 1 ½ hours Instructions: Answer all 5 questions of this exam in the spaces provided on the question sheets. (If necessary, you may write on the back of the sheet). Although the stories may appear "plausibly real", they are fictitious. You have 1 ½ hours to work. The marks for each question are given. Please provide the marker with the greatest opportunity to give you credit by showing all calculations clearly. Answers without clear calculations will not receive full credit. Only normal writing instruments, a calculator and one 8.5"x11" or letter-size page list of hand-written formulas may be used to write this test. This formula sheet must be submitted with the test; otherwise you will automatically receive a mark of zero (0). Question 1 (15 marks) Calculate the duration and volatility of a 5-year, $1,000 face value, 14 percent coupon bond yielding 15 percent with coupons paid annually. (12 marks) Using its duration and volatility, calculate what happens to the price of the bond when the yield to maturity falls to 14 percent. (3 marks) Note: Show all working steps, including calculations of PV, RV and WV, clearly for full credit.
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2 Question 2 (20 marks) With Canadian interest rates at historical lows, McGraw-Hill Ryerson (MHR) is considering whether to refund an old issue of $30 million, 12 percent coupon (paid yearly) 20-year bonds that were sold 5 years ago. A new issue of $30 million, 15-year bonds can be sold with a coupon rate of 9 percent (paid yearly). A call premium of
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This note was uploaded on 11/10/2011 for the course ADMS ADMS 4540 taught by Professor Lie during the Spring '11 term at York University.

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e1f09 - Name: Student ID: Section: AP/ADMS 4540 Financial...

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