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    Jackson Corporation's bonds have a market price of $920 based on their $1,000 par value, 8% annual coupon rate, 12 years remaining to maturity, and a yield to maturity of 9%. Wilson Wonder's bonds have a yield to maturity of 10% based on their $1,000 par value, 10% annual coupon rate, 12 years remaining to maturity, and current market price of $850. The maturity risk premium for a 2-year Treasury security yielding 6.3% is 3% based on the real risk-free rate of 3% and expected inflation of 3% for the next 2 years.

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    Jackson Corporation's bonds have a market price of $920 based on their $1,000 par value, 8% annual coupon rate, 12 years remaining to maturity, and a yield to maturity of 9%. Wilson Wonder's bonds have a yield to maturity of 10% based on their $1,000 par value, 10% annual coupon rate, 12 years remaining to maturity, and current market price of $850. The maturity risk premium for a 2-year Treasury security yielding 6.3% is 3% based on the real risk-free rate of 3% and expected inflation of 3% for the next 2 years.

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    19 views2 pages

    Fin515 Homework Part Two Document

    Uploaded by

    G Jha
    Jackson Corporation's bonds have a market price of $920 based on their $1,000 par value, 8% annual coupon rate, 12 years remaining to maturity, and a yield to maturity of 9%. Wilson Wonder's bonds have a yield to maturity of 10% based on their $1,000 par value, 10% annual coupon rate, 12 years remaining to maturity, and current market price of $850. The maturity risk premium for a 2-year Treasury security yielding 6.3% is 3% based on the real risk-free rate of 3% and expected inflation of 3% for the next 2 years.

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    © All Rights Reserved
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    of 2

    PartTwoANSWER

    51

    BondValuationwithAnnualpayments

    JacksonCorporationsbondshave12yearsremainingtomaturity.Interestispaidannually,the
    bondshavea$1,000parvalue,andthecouponinterestrateis8%.Thebondshaveayieldto
    maturityof9%.Whatisthecurrentmarketpriceofthesebonds?
    52

    YieldtoMaturityforAnnualpayments

    WilsonWonderssbondshave12yearsremainingtomaturity.Interestispaidannually,the
    bondshavea$1,000parvalue,andthecouponinterestrateis10%.Thebondssellatapriceof
    $850.Whatistheiryieldtomaturity?
    bond?
    56

    MaturityRiskPremium

    Therealriskfreerateis3%,andinflationisexpectedtobe3%forthenext2years.A2year
    Treasurysecurityyields6.3%.Whatisthematurityriskpremiumforthe2yearsecurity?
    IntermediateProblems720
    57

    BondValuationwithSemiannualpayments

    RenfroRentalshasissuedbondsthathavea10%couponrate,payablesemiannually.Thebonds
    maturein8years,haveafacevalueof$1,000,andayieldtomaturityof8.5%.Whatistheprice
    ofthebonds?
    513 YieldtoMaturityandCurrentYield
    Youjustpurchasedabondthatmaturesin5years.Thebondhasafacevalueof$1,000andhas
    an8%annualcoupon.Thebondhasacurrentyieldof8.21%.Whatisthebondsyieldto
    maturity?

    s13

    (61) PortfolioBeta
    Anindividualhas$35,000investedinastockwithabetaof0.8andanother$40,000investedin
    astockwithabetaof1.4.Ifthesearetheonlytwoinvestmentsinherportfolio,whatisher
    portfoliosbeta?
    (62) RequiredRateofReturn
    Assumethattheriskfreerateis6%andthattheexpectedreturnonthemarketis13%.Whatis
    therequiredrateofreturnonastockthathasabetaof0.7?

    (67) RequiredRateofReturn
    SupposerRF=9%,rM=14%,andbi=1.3.
    a.

    Whatisri,therequiredrateofreturnonStocki?

    b. NowsupposerRF(1)increasesto10%or(2)decreasesto8%.TheslopeoftheSML
    remainsconstant.HowwouldthisaffectrMandri?
    c. NowassumerRFremainsat9%butrM(1)increasesto16%or(2)fallsto13%.Theslope
    oftheSMLdoesnotremainconstant.Howwouldthesechangesaffect?

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    http://homework.ecrater.com/p/18417866/hw-407-fin515homework-2-part

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