Needs to be done in excel/all work shown

5-1

Jackson Corporation’s bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 8%. The bonds have a yield to maturity of 9%. What is the current market price of these bonds?

5-2

Wilson Wonder’s bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value and the coupon interest rate is 10%. The bonds sell at a price of $850. What is their yield to maturity?

5-6

The real risk-free rate is 3%, and inflation is expected to be 3% for the next 2 years. A 2-year Treasury security yields 6.3%. What is the maturity risk premium for the 2-year security?

5-7

Renfro Rentals has issued bonds that have a 10% coupon rate, payable semiannually. The bonds mature in 8 years, have a face value of $1,000, and a yield to maturity of 8.5%. What is the price of the bonds?

5-13

You just purchased a bond that matures in 5 years. The bond has a face value of $1,000 and has an 8% annual coupon. The bond has a current yield of 8.21%. What is the bond’s yield to maturity?

Question 6-6

If a company’s beta were to double, would its expected return double?

6-1

An individual has a $35,000 invested in a stock with a beta of 0.8 and another $40,000 invested in a stock with a beta of 1.4. If these are the only two investments in her portfolio, what is her portfolio’s beta?

6-2

Assume that the risk-free rate is 6% and that is the expected return on the market is 13%. What is the required rate of return on a stock that has beta of 0.7?

6-7

Suppose that rRF = 9%, rM = 14%, and b1 = 1.3.

a. What is the ri, the required rate of return on Stock i?

b. Now suppose rRF (1) increases to 10% or (2) decreases to 8%. The slope of the SML remains constant. How would this affect rM and ri?

c. Now assume rRF remains at 9% but rM (1) increases to 16% or (2) falls to 13%. The slope of the SML does not remain constant. How would these changes affect ri?

5-1

Jackson Corporation’s bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 8%. The bonds have a yield to maturity of 9%. What is the current market price of these bonds?

5-2

Wilson Wonder’s bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value and the coupon interest rate is 10%. The bonds sell at a price of $850. What is their yield to maturity?

5-6

The real risk-free rate is 3%, and inflation is expected to be 3% for the next 2 years. A 2-year Treasury security yields 6.3%. What is the maturity risk premium for the 2-year security?

5-7

Renfro Rentals has issued bonds that have a 10% coupon rate, payable semiannually. The bonds mature in 8 years, have a face value of $1,000, and a yield to maturity of 8.5%. What is the price of the bonds?

5-13

You just purchased a bond that matures in 5 years. The bond has a face value of $1,000 and has an 8% annual coupon. The bond has a current yield of 8.21%. What is the bond’s yield to maturity?

Question 6-6

If a company’s beta were to double, would its expected return double?

6-1

An individual has a $35,000 invested in a stock with a beta of 0.8 and another $40,000 invested in a stock with a beta of 1.4. If these are the only two investments in her portfolio, what is her portfolio’s beta?

6-2

Assume that the risk-free rate is 6% and that is the expected return on the market is 13%. What is the required rate of return on a stock that has beta of 0.7?

6-7

Suppose that rRF = 9%, rM = 14%, and b1 = 1.3.

a. What is the ri, the required rate of return on Stock i?

b. Now suppose rRF (1) increases to 10% or (2) decreases to 8%. The slope of the SML remains constant. How would this affect rM and ri?

c. Now assume rRF remains at 9% but rM (1) increases to 16% or (2) falls to 13%. The slope of the SML does not remain constant. How would these changes affect ri?

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