prob1-2 - SYRACUSE UNIVERSITY MARTIN J WHITMAN SCHOOL OF...

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SYRACUSE UNIVERSITY MARTIN J. WHITMAN SCHOOL OF MANAGEMENT Investments Professor David Weinbaum Problem Set 1 This is an optional problem set. The solutions are posted on Blackboard but you should not look at them until you have had a chance to work on the problems. While you are not expected to hand anything in, solving the problems will help you keep up with the material. Also, the questions on the problem sets are representative of the kinds of questions that will be asked in the tests. Exercise 1 (Bond Valuation) Habitract Inc. has decided to issue bonds to raise capital for a large-scale project that involves the construction of 24 new wind turbines in Tehachapi, CA. (a) The bonds will have the following characteristics: Annual coupons of $50 Face value of $1000 Maturity of 5 years The required rate of return on the part of Habitract’s bondholders is 5%. What is the value of the bonds? (b) Assume instead (in this question only) that the maturity of the bonds is 7 years rather than 5. How does this change your answer in question (a)? Can you explain what is happening, in
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This note was uploaded on 04/05/2012 for the course FIN 456 taught by Professor Davidweinbaum during the Spring '12 term at Syracuse.

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prob1-2 - SYRACUSE UNIVERSITY MARTIN J WHITMAN SCHOOL OF...

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