Question

inimum and maximum: 17 The collar of a floating-rate bond refers to the minimum A) call periods. B) matunity dates C) yields to maturity D) coupon rates. E) market prices. 18) You would like to provide $125,000 a year forever for your heire must you deposit today to fund this goal if you can earn a guarante return? A) $2,321,212 weirs. How much monty canteed 4.5 percent tatt of B) $2,858,122 C) $2,777,778 D) $2,850,000 E) $2,666,667 101 The interest rate that is most commonly quoted by a lender is referred to as the A) common rate. B) simple rate. C) annual percentage rate. D) compound rate. E) effective annual rate. ed to as the: 15 20) HCC, Inc., expects its dividends to grow at 25 percent per year for the next seven years before levelling off to a constant 3 percent growth rate. The required return is 11 percent. What is the current stock price if the annual dividend per share that was just paid was $1.05? A) $43.21 B) $38.93 C) $39.96 D) $32.11 E) $44.36 21) Today, you have two coins each of which is valued at $100. One coin is expected to appreciate by 5.2 percent annually while the other coin should appreciate byl po annually. What will be the difference in the value of the two coins 50 years from A) $337.43 B) $318.04 C) $191 79 D) $380.15 E) 20) 2) A newly issued 10-year, $1,000,zero Coupon hond ist sold for S311.05. Wh implicit interest, in dollars, for the first year of the bond's life? Assume sem compounding. A) S41.47 B) $45.89 C ) $5763 D) $47.72 21) coupon bond just sold for $311.05. What is the 30 years from now? 15 E) $128.32 " Assume semiannual 22) - *1.72 E) $38.53

Answer 1

Q - 17 ) ............ Select - (D) ........Coupon rates

Q - 18) .............Select - (C) ..........2,777,778

Value of a perpetuity = Perpetual Income / Interest rate

= 125,000 / 0.045

= 2,777,778

Q - 19 ) ..........Select - (C) ...........Annual percentage rate

Q - 20) ...........Select - (A) ...........43.21

Year	1	2	3	4	5	6	7	7
Dividend	1.3125	1.640625	2.050781	2.563477	3.204346	4.005432	5.00679	64.46242
DF	0.900901	0.811622	0.731191	0.658731	0.593451	0.534641	0.481658	0.481658
PV	1.182432	1.331568	1.499514	1.688641	1.901623	2.141468	2.411563	31.04887	43.21

Dividends are computed by multiplying previous dividend with 1.25

DF = Discounting factors

PV = Dividend * PV

In the seventh year apart from dividend we will be having horizon value of share with constant growth of 3%.

That is calculated as ...... 5.00769 * (1.03 ) / ( 0.11 - 0.03 ) = 64.4642

For this reason ............. year - 7 is repeated twice in the table.

Total of PV = 43.21 is the current stock price.

Question - 21.............Select - (A) ......... 337.43

100 * ( 1.057)⁵⁰ - 100 * (1.052)⁵⁰

= 1598.63 - 1261.21

= 337.42

Note : 5 Questions answered as against the limit of 4 Questions.