1) Do you have the same opinion that asymmetric information and moral hazard are significant concepts in understanding evolution of financial market?
Analyse the development of financial markets from function information plays in markets. Can you think of suitable example to show the function of information in financial markets? You may use the newspaper/magazine article to justify your answer.
2) Compute yield to maturity on the given bonds. (LG 3-2)
a) 9 percent coupon (paid semi-annually) bond, with - $1,000 face value and 15 years enduring to maturity. Bond is selling at $985.
b) 8 percent coupon (paid quarterly) bond, with $1,000 face value and 10 years enduring to maturity. Bond is selling at $915.
c) 11 percent coupon (paid annually) bond, with the $1,000 face value and 6 years lasting to maturity. Bond is selling at $1,065.
3) Stock you are estimating just paid the annual dividend of $2.50. Dividends have rise at the steady rate of 1.5 percent over last 15 years and you expect this to continue
i) If the essential rate of return on stock is 12 percent, determine its fair present value?
ii) If necessary rate of return on stock is 15 percent, determine its expected price four years from today?