Question -
Q1. Company X has non-callable bonds outstanding. When originally issued, the bonds sold for $950 per bond; today (January 1) their current market price is $1,060 per bond. The company pays a semiannual interest payment of $40 per bond on June 30 and December 31 each year.
If the bonds are perpetual bonds,
a) What is the implied semiannual yield on these bonds as of today?
b) What are the nominal annual yield and the effective annual yield on these bonds?
If the bonds have a $1,000 par value and mature in 10 years,
a) What is the implied semiannual yield to maturity (YTM) on these bonds?
b) What are the nominal annual YTM and the effective annual YTM on these bonds?
Q2. A person was considering buying a house priced at $180,000. A mortgage company claimed the interest rate for the 20-year loan is 8%. The company also estimated that the points and Appraisal, Credit Report, Processing, Document Preparation, Administration, Underwriting, Flood Certificate, Tax Service, Wire Transfer, and other fees would be $11,000 in total.
a) What would be the monthly payment, if the person decided to borrow 90% of the cost of the house and 100% of the processing fees?
b) What is the APR of the loan?
c) If the person accepts the terms of the loan on Feb. 28, 2003, the first monthly payment is due on March 31. How much mortgage would be paid off after the 30th payment?
d) How much interest charge could this person claim for deduction in the 2005 Tax Return, i.e. the total interest occur during year 2004?
Q3. a) Determine the expected quarterly return, and standard deviation of the stock. b) Determine the correlations among them.
c) What is the expected return and standard deviation of a portfolio comprised of 25% stock A, 15% stock B, 20% stock C, and 40% stock D.
|
A
|
B
|
C
|
D
|
|
0.07
|
0.05
|
0.07
|
0.06
|
|
0.12
|
0.08
|
0.05
|
0.03
|
|
0.04
|
0.10
|
-0.02
|
0.04
|
|
-0.09
|
-0.10
|
0.03
|
0.07
|
|
0.12
|
0.05
|
0.06
|
0.05
|
|
0.08
|
0.11
|
0.05
|
0.02
|
|
0.11
|
0.12
|
0.10
|
0.03
|
|
-0.06
|
0.03
|
0.08
|
0.01
|
|
0.07
|
-0.02
|
-0.06
|
0.06
|
|
0.08
|
0.07
|
0.08
|
0.05
|
Q4. a) IBM stock closed today at $160.77 a share (it closed at $127.49 a year ago). During the past year, it also gave out $2.60 dividend per share. What is the market-determined yield on IBM stock? b) Find the beta value for IBM common stock. (Print out source)
c) Find the most updated interest rate on 3-month US Treasury Bill. Use it as the risk free rate.
d) From the same period of time, the Dow Jones Industrial Average went from 10374.16 to 12068.50. Assume it represents the return for the market portfolio, what is the required rate of return on IBM common stock? Is it overpriced or underpriced?