1. What is the value of a semi-annual interest bond with 4 years to maturity, 7 percent coupon, $1,000 par value, that is currently priced to yield 8%?
2. Suppose that you are interested in buying a bond that pays interest semi-annually. It has an annual coupon of 5% with interest payable on January 15th and July 15th. The bond accrued interest is determined using a 30/360 day count street convention. If the bond is currently priced at $1,180, what is the invoice price for the bond using a settlement date of December 18?
3. What is the modified duration for a three-year, semi-annual pay, $1,000 par value, 5.00% coupon bond that is currently priced to yield 6.89%?
4. A semiannual pay, noncallable, $1,000 par value, 5.25% coupon, 8-year bond is currently priced at 108.35 percent of par. What is the bond’s yield to maturity?
5. You have $250,000 invested in bond A which has a modified duration of 3 and $175,000 invested in bond B which has a modified duration of 12. If interest rates rise by 50 basis points, your portfolio would gain/lose approximately how much money? (State gain or loss and the dollar amount of change).
6. You see a mature, stable stock with a high dividend payout that you want to value. The stock paid a dividend of $1.42 per share over the past twelve months. Dividends are growing at a constant rate of 3.0% per year. The risk-free rate of return is 4% and the market risk premium (expected return on the S&P 500 minus the risk-free rate of return) is 6%. The stock has a beta of 1.17 versus the S&P 500. Calculate the intrinsic value of this stock using the constant growth dividend discount model.
7. You see a fast growing company that is estimated to have dividend growth of 20%, 18%, and 16% over each of the next three years (20% in year 1, 18% in year 2, 16% in year 3). The company paid a dividend of $1.28 per share over the past twelve months. Dividends are expected to grow at a constant rate of 3.0% per year beginning in year 4 to perpetuity. The risk-free rate of return is 4% and the market risk premium (expected return on the S&P 500 minus the risk-free rate of return) is 6%. The stock has a beta of 1.25 versus the S&P 500. Calculate the intrinsic value of this stock using the two-stage dividend discount model.