Question 1
A $1,000, 7% annual coupon bond matures in three years. The bond is currently priced at $974.23 and has a YTM of 8.0%. What is the Macaulay duration?
Question 2
A bond matures in 30 years, has a 20 year duration and a yield to maturity of 9.32%. The market interest rate has increased by 0.47%. The modified duration is:
Question 3
Last year, Sue purchased a closed-end mutual fund that was trading at $42 and had an NAV of $38. Sue sold the fund today when the NAV is $44 and the market price is $43. The fund paid $1 in dividends over the past year. What is the Sue's holding period return?
Question 4
An investment has an installed cost of $568,382. The cash flows over the four-year life of the investment are projected to be $197,584, $241,318, $189,674, and $157,313.
a) If the discount rate is zero, what is the NPV?
b) If the discount rate is infinite, what is the NPV?
c) At what discount rate is the NPV just equal to zero?
Question 5
Stock in CDB Industries has a beta of .95. The market risk premium is 7 percent, and T-bills are currently yielding 4 percent. CDB’s most recent dividend was $2.40 per share, and dividends are expected to grow at an annual rate of 5 percent indefinitely. The stock sells for $46 per share.
a) Using the CAPM, what is your estimate of the company's cost of equity?
b) Using the dividend discount model, what is your estimate of the company's cost of equity?
c) What is your best estimate of the company's cost of equity?
QUESTION 6
Jiminy's Cricket Farm issued a 30-year, 7 percent semiannual bond 9 years ago. The bond currently sells for 88 percent of its face value. The book value of this debt issue is $102 million. In addition, the company has a second debt issue, a zero coupon bond with 12 years left to maturity; the book value of this issue is $61 million, and it sells for 58.5 percent of par. The company’s tax rate is 30 percent.
a) What is the total book value of debt?
b) What is the total market value of debt?
c) What is the aftertax cost of the 7 percent coupon bond?
d) What is the aftertax cost of the zero coupon bond?
e) What is the aftertax cost of debt?