Due Date and Time: 5/5/2011 in Class

FINAN520Homework3

Due Date and time: 5/5/2011 in class

When you turn in your homework, please attach your work showing how you get the answer for calculation questions.

1.The invoice price of a bond is the ______.
A.stated or flat price in a quote sheet plus accrued interest

2.In an era of particularly low interest rates, which of the following bonds is most likely to be called?
C.Coupon bonds selling at a premium

3.A convertible bond has a par value of $1,000 but its current market price is $975. The current price of the issuing company's stock is $26 and the conversion ratio is 34 shares. The bond's market conversion value is ______.
B.$884

4.A coupon bond which pays interest of 4% annually, has a par value of $1,000, matures in 5 years, and is selling today at $785. The actual yield to maturity on this bond is ______.
D.9.6%

5.A coupon bond which pays interest of $60 annually, has a par value of $1,000, matures in 5 years, and is selling today at a $75.25 discount from par value. The current yield on this bond is ______.
B.6.49%

6.A callable bond pays annual interest of $60, has a par value of $1,000, matures in 20 years but is callable in 10 years at a price of $1,100, and has a value today of $1055.84. The yield to call on this bond is ______.
A.6.00%

7.A coupon bond pays semi-annual interest is reported as having an ask price of 117% of its $1,000 par value in the Wall Street Journal. If the last interest payment was made 2 months ago and the coupon rate is 6%, the invoice price of the bond will be ______.
C.$1,180

8.Cache Creek Manufacturing Company is expected to pay a dividend of $4.20 in the upcoming year. Dividends are expected to grow at the rate of 8% per year. The riskfree rate of return is 4% and the expected return on the market portfolio is 14%. Investors use the CAPM to compute the market capitalization rate on the stock, and the constant growth DDM to determine the intrinsic value of the stock. The stock is trading in the market today at $84.00. Using the constant growth DDM and the CAPM, the beta of the stock is ______.
B.0.9

9.Todd Mountain Development Corporation is expected to pay a dividend of $3.00 in the upcoming year. Dividends are expected to grow at the rate of 8% per year. The risk-free rate of return is 5% and the expected return on the market portfolio is 17%. The stock of Todd Mountain Development Corporation has a beta of 0.75. Using the constant growth DDM, the intrinsic value of the stock is ______.
D.50.00

10.Lifecycle Motorcycle Company is expected to pay a dividend in year 1 of $2.00, a dividend in year 2 of $3.00, and a dividend in year 3 of $4.00. After year 3, dividends are expected to grow at the rate of 7% per year. An appropriate required return for the stock is 12%. Using the multistage DDM, the stock should be worth ______today.
C.$67.95