1. As part of a move to reorganize her mutual fund portfolio, a fund manager is considering adding GE Bonds to her portfolio. Outstanding GE Bonds currently pay a 7.5 % coupon and matures in 14 years. The bonds have a face value of $1,000 and a market price of $942.90. Interest is paid semiannually. If she holds on to these bonds till maturity, what is the overall rate of return that she can earn from these bonds?
8.19% 16.39% 17.20% 16.40% none of the above
2. Assume that you are a consultant to Thornton Inc., a company which wants to go public. You have been provided with the following data: Market Risk Premium = 6.0%; The S&P500 Index is expected to provide a return of 11.5% in the near future; beta = 0.8. The CEO of Thornton Inc. does not want to commit too much to the investors before the equity offering and wants to know the fair return figure for marketing the equity offering. What should be your answer?
9.65% 9.91% 10.08% 10.30% 10.49%