1. FI515 Week 3 Homework Assignment
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5.1 Jackson Corporation's bonds have 12 years remaining to maturity. Interest is
paid annually...? 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
market price of these bonds?
5.2 Wilson Wonders'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 which matures in 5 years. The bond has a face
value of $1,000, and has an 8 percent annual coupon. The bond has a current
yield of 8.21 percent. What is the bond’s yield to maturity?
6-6 If a company’s beta were to double, would it expected return double?
6-1 An individual has $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 risk?
6-2 Assume that the risk-free rate is 6% and the expected return on the market is
13%. What is the required rate of return on a stock with a beta of 0.7?
6-7 Suppose %, %, and
a)What is 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?