Why is it so rare for a bond holder to earn the yield to maturity over the life of the bond?
Why do bond prices move towards par as time passes?
Define each of the following terms: a. exercise price; b. call option; c. put option.
What is the difference between the intrinsic value of a call and the time value of a call option?
Shirtco stock is currently valued at 7.5 per share. Find the price of a 6 month call with an exercise price of 7. Shirtco's variance is .03. The risk free rate is 3%.
Explain how the equity in a firm that uses debt is like a call option.
Timco bonds are currently valued at 979. They have 5 years until maturity and the coupon rate is 4%. What is the yield?
The market value of Timco's equity is currently 100 million. The various kinds of debt are worth 75 million. What should the firm's assets be worth? Why?
What four things must happen to earn the yield to maturity on a bond?
Richards' Bottling Co. paid a dividend of 2 last year. They are expected to pay 2.20 this year. This rate of growth is expected to continue forever. Shareholders need to earn 12%. Find the fair price.