Problem 1) For 2006, Treasury bonds with 5-year maturities offered a return about 8.65%; face value of $1,200; and 7.25% coupon rate. What would be the present value of this bond?
Problem 2) Mrs. Smith has 20 common stocks from A&T Global Enterprises. If the A&T Global Enterprises' board directors believe that the price at the end of the year, these common stocks will rise to $57.80 per common stock and the estimate dividend paid would be $2.15 per common stock, what would be the actual price for each common stock if the expected rate of return is 10.75%?
Problem 3) Simon bought a common stock from Monona Air Cleaners Inc. at $35 per share for January 5, 2006 and he expected that the price per share increase by $8 for December 31, 2006. If Monona Air Cleaners will pay $1.75 for dividend per share, what would be the expected rate of return of Simon's shares?
Problem 4) Four Possible Outcomes for Portfolio Return
Outcome Possible Return Probability
Expansion 60% 0.1
Normal 25% 0.5
Recession 5% 0.3
Other -15% 0.1
A) Calculate the following: 1) The Expected Portfolio Return; 2) Variability of Expected Return.
Problem 5) Consider the following two-assets:
Expected return Expected risk (σ)
Company X - Japan 10% 12%
Company X - Spain 20% 25%
Correlation coefficient (ρJ-S) 0.45
A) Calculate the portfolio risk (expected return and variability) if you decide invest 35% of your profit in Spain and the other in Japan.
Problem 6) By 2005 the rate of return of Treasury bill was 5.25% and market rate of return was 9.75%, with .85 of beta for J&M Warehouse's common stock. What is the expected rate of return of its common stocks?.
Problem 7) Consider the previous exercise and calculate beta if the market rate of return is 12.25%.