hw2a_u201_fall07 - Northeastern University Financial...

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Northeastern University Financial Management – FIN U201 – Section 05 – Fall 2007 Key No. 59770: 222 Hayden, Mondays, Wednesdays & Thursdays, 4:35-5:40PM Richard Goettle Cambridge Planning 409C Hayden Hall (Finance Group, 413 Hayden) Office 617.576.6465 NU Office 617.373.5030 Cell: 617.947.9027 E-mail [email protected] Site http:// blackboard.neu.edu Office Hours: Mondays, Wednesdays and Thursdays 2:00-4:00PM. Anytime by prior arrangement. Do not hesitate to contact me at one of the two office numbers above (call my cell only in emergencies). I always answer the phone when I’m in an office. Also, do not hesitate to drop by any other time. I’m generally in and always available. Generally, I am at the Cambridge number on Tuesdays and Fridays. Teaching Assistants: 412 Hayden, 617.373.4567 Homework Assignment 2 – Due Wednesday, November 7 th , 2007 1. Each of the bonds shown in the following table pays interest annually. Bond Par Value ($) Coupon interest rate (%) Years to maturity Current value ($) A 1000 9 8 820 B 1000 12 16 1000 C 500 12 12 560 D 1000 15 10 1120 E 1000 5 3 900 Calculate the yield to maturity (YTM) for each bond. 2. Mark Goldsmith’s broker has shown him two bonds. Each has a maturity of 5 years, a par value of $1000, and a yield to maturity (YTM) of 12%. Bond A has a coupon rate of 6% paid annually. Bond B has a coupon rate of 14% paid annually. What is the selling price for each of the bonds? 3. Newman Manufacturing is considering a cash purchase of the stock of Grip Tools. During the year just completed, Grips earned $4.25 per share and paid cash dividends of $2.55 per share (D 0 =$2.55). Grip’s earnings and dividends are expected to grow 25% per year for the next 3 years, after which they are expected to grow at 10% per year to infinity.
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