MGMT 061-Renfro Rentals has issued bonds that have a 14%

MGMT 061-Renfro Rentals has issued bonds that have a 14%

Subject: Business    / Finance   
Question
QUESTION 1

    Renfro Rentals has issued bonds that have a 14% coupon rate, payable semiannually. The bonds mature in 6 years, have a face value of $1,000, and a yield to maturity of 10%. What is the price of the bonds?
    $850
    $1,000
    $1,400
    $1,177
    $1,086

2 points

QUESTION 2

    Thatcher Corporation’s bonds will mature in 5 years. The bonds have a face value of $1,000 and an 9% coupon rate, paid semiannually. The price of the bonds is $1,050. The bonds are callable in 3 years at a call price of $1,150. What is their yield to call?
    6.62%
    8.00%
    9.00%
    11.33%
    7.77%

2 points

QUESTION 3

    A bond that matures in 5 years sells for $1,250. The bond has a face value of $1,000 and a yield to maturity of 11.5%. The bond pays coupons semiannually. What is the bond’s current yield?
    14.57%
    10.78%
    9.11%
    10.59%
    11.50%

2 points

QUESTION 4

    A bond trader purchased each of the following bonds at a yield to maturity of 6%. Immediately after she purchased the bonds, interest rates fell to 5%. What is the percentage change in the price of the following bond after the decline in interest rates?

    $100 perpetuity
    6.75%
    1.00%
    7.08%
    14.29%
    20.00%

2 points

QUESTION 5

    An investor has two bonds in his portfolio. Each bond matures in 4 years, has a face value of $1,000, and has a yield to maturity equal to 8.5%. One bond, Bond C, pays an annual coupon of 12%; the other bond, Bond Z, is a zero coupon bond. Assuming that the yield to maturity of each bond remains at 8.5% over the next 4 years, what will be the price of Bond Z at the following time periods?

    At the end of year 2
    $721.57
    $1,114.65
    $832.49
    $849.46
    $1,012.79

2 points

QUESTION 6

    Calculate the stock’s expected return for A stock’s return withs the following distribution:
    Demand for the    Probability of This    Rate of Return If This
    Company’s Products    Demand Occurring    Demand Occurs (%)
    Weak    0.2    -30%
    Below average    0.2    -10%
    Average    0.3    16%
    Above average    0.2    25%
    Strong    0.1    40%
    5.80%
    11.40%
    8.20%
    22.98%
    26.69%

2 points

QUESTION 7

    Your retirement fund consists of a $10,000 investment in each of 16 different common stocks. The portfolio’s beta is 1.50. Suppose you sell one of the stocks with a beta of 0.8 for $10,000 and use the proceeds to buy another stock whose beta is 1.6. Calculate your portfolio’s new beta.
    1.45
    1.25
    1.55
    1.23
    1.60

2 points

QUESTION 8

    Stock R has a beta of 2.5, Stock S has a beta of 1.25, the expected rate of return on an average stock is 15%, and the risk-free rate is 7%. By how much does the required return on the riskier stock exceed that on the less risky stock?
    7.00%
    16.00%
    17.00%
    10.00%
    4.50%

2 points

QUESTION 9

    Suppose you had held a portfolio consisting of 50% of Stock A and 50% of Stock B. What would have been the average return on the portfolio during this period?
    Year    rA    rB
    2009    -30.00%    -7.50%
    2010    63.00%    22.50%
    2011    30.00%    -19.50%
    2012    -12.00%    75.00%
    2013    37.50%    18.00%
    50.00%
    25.00%
    11.80%
    37.50%
    17.70%

2 points

QUESTION 10

    Suppose you had held a portfolio consisting of 50% of Stock A and 50% of Stock B. Calculate the standard deviation of returns for each stock for the portfolio.
    Year    rA    rB
    2009    -30.00%    -7.50%
    2010    63.00%    22.50%
    2011    30.00%    -19.50%
    2012    -12.00%    75.00%
    2013    37.50%    18.00%
    36.49%
    16.34%
    25.28%
    27.48%

    24.51%