Problem 1
Jackson Corporation's bonds will mature in 10 years. The bonds have a face value of $1000, and an 8% coupon rate, paid semi annually. The price of the bond is $1,100. The bonds are callable in 5 years at a call price of $1,080. a) What is their yield to maturity (YTM)? b) What is their yield to call (YTC)?
Problem 2
The market and stock j have the following probability distributions:
Probability Market return, Rm Stock return, Rj
0.30 15.0% 20.0%
0.40 9.0 5.0
0.30 18.0 12.0
a. Calculate the expected rates of return for the market and Stock j.
b. Calculate the standard deviations for the market and Stock j.
c. Calculate the coefficient of variation for the market and Stock j.
Problem 3
Microtech Corporation is expanding rapidly, and it currently needs to retain all of its earnings, hence it does not pay any dividends. However, investors expect Microtech to begin paying dividends, with the first dividend of $1.00 coming 3 years from today. The dividend should grow rapidly - at a rate of 50 percent per year - during Years 4 and 5. After Year 5, the company should grow at a constant rate of 8 percent per year. If the required return on the stock is 15 percent, what is the value of the stock today?