1. Calculate the bond equivalent yield and effective annual return on a jumbo CD that is 115 days from maturity and has a quoted nominal yield of 6.56 percent. (LG 5-1)
2. You can purchase a T-bill that is 95 days from maturity for $9,965. The T-bill has a face value of $10,000. (LG 5-2)
a. Calculate the T-bill's quoted yield.
b. Calculate the T-bill's bond equivalent yield.
3. You can buy commercial paper of a major U.S. corporation for $495,000. The paper has a face value of $500,000 and is 45 days from maturity. Calculate the discount yield and bond equivalent yield on the commercial paper. (LO 5-2)
4. Refer to Table 6-1. (LG 6-2)
a. Verify the July 16, 2010 asked yield of 1.83% on the Treasury bond, stripped principal STRIP maturing August 2015. Use a two-day settlement period from the date of purchase (i.e., ownership occurs on Monday, July 19, 2010). The STRIP matures on August 15, 2015.
b. Verify the asked price (86.823) on the Treasury note, stripped principal STRIP maturing in November 2016, i.e., the STRIP matures on November 15, 2016.
5. You can invest in taxable bonds that are paying a 9.5 percent annual rate of return or a municipal bond pay¬ing a 7.75 percent annual rate of return. If your marginal tax rate is 21 percent, which security bond should you buy? (W 6-2)
6. Use the bond pricing formula and Table 6-6 to calculate the number of years (to the nearest 1/1000' of a year) between the Monday. July 19, 2010, settlement date and the maturity date on the Massachusetts Development Finance Agency revenue bonds maturing on January I, 2040. (LO 6-2)
7. Refer to Table 6-7. (LG 6-2)
a. What was the closing price on the Bank of America 5.625 percent coupon bonds on July 16, 2010?
8. You plan to purchase an $80,000 house using a 15-year mortgage obtained from your local bank. The mortgage rate offered to you is 8.00 percent. You will make a down pay¬ment of 20 percent of the purchase price. (LG 7-4)
a. Calculate your monthly payments on this mortgage.
b. Calculate the amount of interest and, separately, princi¬pal paid in the 127th payment.
c. Calculate the amount of interest and, separately, princi¬pal paid in the 159th payment.
d. Calculate the amount of interest paid over the life of this mortgage.
9. You plan to purchase a $200,000 house using a 30-year mort-gage obtained from your local credit union. The mortgage rate offered to you is 6.50 percent. You will make a down payment of 20 percent of the purchase price.
a. Calculate your monthly payments on this mortgage.
b. Construct the amortization schedule for the first six payments.
10. (use bank rate.com, mortgage amortization table). What will be your monthly payment on a $400,000 15 and a 30 yr mortgage if the rate is 4.25% for people with good credit and 13.5% for people with bad credit? (4 calculations). Also, how much interest will you pay over the life of the 4 loans you just calculated?
11. Suppose you own 50,000 shares of common stock in a firm with 2.5 million total shares outstanding. The firm announces a plan to sell an additional I million shares through a rights offering. The market value of the stock is $35 before the rights offering and the new shares are being offered to exist-ing shareholders at a $5 discount. (LG 8-3)
a. If you exercise your preemptive rights, how many of the new shares can you purchase?
b. What is the market value of the stock after the rights offering?
c. What is your total investment in the firm after the rights offering? How is your investment split between original shares and new shares?
12. Refer to the stock market quote in Table 8-1. (LG 8-5)
a. What was the closing stock price for Abbott Laborato¬ries on August 11, 2010?
b. What were the high and low prices at which McGraw-Hill traded between August 12, 2009 and August I I, 2010?
c. What was the dividend yield on Waste Management stock as of August 11, 2010?
13. Bank USA recently purchased $10 million worth of euro-denominated one-year CDs that pay 10 percent interest annually. The current spot rate of U.S. dollars for euros is $1.30/€1. (LG 9-5)
a. Is Bank USA exposed to an appreciation or depreciation of the dollar relative to the euro?
b. What will be the return on the one-year CD if the dollar appreciates relative to the euro such that the spot rate of U.S. dollars for euros at the end of the year is $1.20/€1?
c. What will be the return on the one-year CD if the dollar depreciates relative to the euro such that the spot rate of U.S. dollars for euros at the end of the year is $1.40/€1?
14. If a bundle of goods in Japan costs V4,000,000 while the same goods and services cost $40,000 in the United States, what is the current exchange rate of U.S. dollars for yen? If, over the next year, inflation is 6 percent in Japan and 10 percent in the United States, what will the goods cost next year? Will the dollar depreciate or appreciate relative to the yen over this time period? (LG 9-7)
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