1. Koyas has high cyclicality in its sales of commercial jets (many of which cost a few hundred million dollars.) Its operating leverage is also higher rather than lower. However, its beta is only .6. Why? (hint: Koyas sells military hardware, and that portion of their business is 60% of their overall business.) What would change if anything, if this firm has a beta unlevered of .292683, Its D/E is .6/.4, tax rate is .3. If its risk premium is .08 and the T bill is 2%.
2. An 8% 15 year bond has a ytm of 7%. If the ytm falls by 1%, what will the new price be? What will it be approximately?
3. We have a 30 year 10 % bond with a ytm of 10%. It the interest rates alter by 3%, show the price change with duration and convexity, if convexity is 35.
4. The values of X1, X2, X3, X4 and X5 are .1, .2, .08, .2 and .3. Explicate the meaning of those numbers for the Z score. What are the prospects of this firm? Discuss thoroughly.
5. There is a 14 year 12% bond that we buy when the market rates are 8%. What shall we sell it at in 4 years, if the market rates drop to 10%? Also, what is the current market price?