Bond Valuation with Annual payments

Jackson Corporation’s bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 8%. The bonds have a yield to maturity of 9%. What is the current market price of these bonds?

Yield to Maturity for Annual payments

Wilson Wonders’s bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 10%. The bonds sell at a price of $850. What is their yield to maturity?

Maturity Risk Premium

The real risk-free rate is 3%, and inflation is expected to be 3% for the next 2 years. A 2-year Treasury security yields 6.3%. What is the maturity risk premium for the 2-year security?

Bond Valuation with Semiannual payments

Renfro Rentals has issued bonds that have a 10% coupon rate, payable semiannually. The bonds mature in 8 years, have a face value of $1,000, and a yield to maturity of 8.5%. What is the price of the bonds?

Yield to Maturity and Current Yield

You just purchased a bond that matures in 5 years. The bond has a face value of $1,000 and has an 8% annual coupon. The bond has a current yield of 8.21%. What is the bond’s yield to maturity?

** (6-6)**

If a company’s beta were to double, would its expected return double?

Portfolio Beta

An individual has $35,000 invested in a stock with a beta of 0.8 and another $40,000 invested in a stock with a beta of 1.4. If these are the only two investments in her portfolio, what is her portfolio’s beta?

Required Rate of Return

Assume that the risk-free rate is 6% and that the expected return on the market is 13%. What is the required rate of return on a stock that has a beta of 0.7?

Required Rate of Return

Suppose r_{RF} = 9%, r_{M} = 14%, and b_{i} = 1.3.

a. What is r_{i}, the required rate of return on Stock i?

b. Now suppose r_{RF} (1) increases to 10% or (2) decreases to 8%. The slope of the SML remains constant. How would this affect r_{M} and r_{i}?

c. Now assume r_{RF} remains at 9% but r_{M} (1) increases to 16% or (2) falls to 13%. The slope of the SML does not remain constant. How would these changes affect r_{i}?