A 10 percent coupon bond has 15 years left to maturity and could be called in two years. If the
bond is called, investors will earn 4 percent. The call premium is one year of coupon payments. If
coupon payments are made annually and part value is 1000, w
An all-equity firm is considering the projects shown below. The T-bill rate is 3 percent and the market risk
premium is 6 percent. Calculate the project-specific benchmarks for each project.
A: 3% + 0.3(6%)=4.80%
B: 3% + 1.1*6%=9.60%
Chapter 2: 31,32
2-31 Income Statement Listed below is the 2012 income statement for Tom and Sue Travels, Inc.
Tom and Sue Travels, Inc.
Income Statement for Year Ending December 31, 2012
(in millions of dollars)
Less: Cost of goods
Expected return and standard deviation for an individual security
Example: given the expectations listed below, find the expected return, the variance of returns,
and the standard deviation of returns
o E(r)= .2(.3)+.45(.10)+.35(-.15) = 5.25%
Chapter 10: Bond Prices and Yields.1
10.1: Bond Characteristics.1
10.2 Bond Pricing.3
10.3: Bond Yields.3
10.4 Bond prices over time.5
10.5: Default risk and bond pricing.6
10.6: the yield curve.
JoJo's portfolio's return is 12 percent. She is invested in Cisco and IBM which had returns of 15 percent and
9 percent respectively. What percentage of JoJo's assets are invested in each firm?
o 50 percent in each
o 12=15x+(1-x)*9 x=0.5
You have $10,000
A stock recently paid a dividend of $3 per share. Its growth rate is expected to be 8 percent. Investors
require a 10 percent return. The stock is selling in the market for $140. What is this stock worth and is the
stock undervalued or overvalued?
The following summary provides a closer look at some of the key statistics regarding the monthly
historical stock prices of Coca-Cola Enterprises (CCE), JC Penney (JCP), and the S&P 500 index over
Moms Cookies, Inc., is considering the purchase of a new cookie oven. The original cost of the old oven
was $41,000; it is now five years old, and it has a current market value of $18,000. The old oven is being
depreciated over a 10-year life toward a zer
cap gains = g