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[Discussion] - 7 Handout

# [Discussion] - 7 Handout - Review Problems 1 I have a...

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Review Problems 1. I have a zero - coupon bond with a face value of \$1000. It matures in 5 years. With a yield to maturity of 5%, what is it worth right now? 1000/(1+0.05)^5 2. My bond has a yield to maturity of 5%, annual payments of \$50, and a \$1500 face value. Find the present value. Time to maturity is 5 years. 50/(0.05)*(1 - 1/(1+0.05)^5) + 1500/(1+0.05)^5 3. Draw a normal and inverted yield curve. What is the inverted a predictor of? http://www.smartmoney.com/investing/bonds/the - living - yield - curve - 7923/ see this link. The yield curve in an inverted form may be an indicator or an oncoming recession. Easy Introductory Problems 4. My stock has recurring yearly dividend payments of \$1.00 a share. At a 5% interest rate, what is the value of the stock? 1/0.05 5. Suppose I have a stock with a differential growth model: Draw the cash flow diagram of the differential growth model stock. T 1 2 1 1 Div (1 ) 1 (1 ) (1 ) T T T R g g C P R g R R

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6. Estimate the growth rate of corporation X with the following data: Plowback ratio of 0.7,
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