MA373 S09 Test 3 version 1

MA373 S09 Test 3 version 1 - 1(10 points The preferred...

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1. (10 points) The preferred stock of Kenyon Corporation pays a dividend of 10 per quarter. The next dividend is payable today. Dividends are assumed to remain level and continue forever. Calculate the price of the preferred stock prior to the payment of today’s dividend to yield a nominal interest rate of 6% compounded quarterly.
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2. (16 points) Tony must pay 100,000 at the end of 6 years. Tony wants to fully immunize his liability by purchasing the following two zero coupon bonds: a. Bond I is 5 year bond maturing for 1000; and b. Bond II is a 10 year bond maturing for 1000. Calculate the amount of money that Tony should use to purchase each bond at an interest rate of 8%.
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3. (10 points) The Macaulay Duration of a perpetuity immediate with level annual payments is 26. Determine the interest rate that was used to calculate the Macaulay Duration.
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4. (20 points) A 3 year bond has annual coupons. The coupon at the end of the first year is 100.
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This note was uploaded on 02/26/2012 for the course MA 373 taught by Professor Staff during the Fall '08 term at Purdue.

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MA373 S09 Test 3 version 1 - 1(10 points The preferred...

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