1.Price of a zero coupon bond= |
the PV of its cash flow (ie. Face value recd. At maturity) discounted at the market interest rate |
ie. Price of a Zero= Maturity value/(1+r)^n |
where , maturity value is normally $ 1000 |
r= market interest/effective rate per period, here, 3.8%/2=1.9% or 0.019 |
n= no.of compounding periods,here, 20*2=40 semi-annual compounding periods |
so, plugging in the values, |
Price of the Zero=1000/(1+0.019)^40= |
471.01 |
ANSWER: |
Zero-coupon bond price= $ 471 |
2.Portfolio return |
is the weighted average returns of the individual stocks |
$ value of the total portfolio=(6000+5000+8500)= $ 19500 |
So, wt. of News Corp stocks to Total =6000/19500= 30.77% |
wt. of First Data stocks to Total =5000/19500= 25.64% |
wt. of Whirlpool stocks to Total =8500/19500= 43.59% |
Now, the wt. av. Portfolio return= |
(30.77%*8.24%)+(25.64%*-2.59%)+(43.59%*10.13%)= |
6.29% |
ANSWER: |
Portfolio Return= 6.29% |
3.. ANSWER: A-- yield spread between bonds of different quality chang eover time. |
Yield spread is the difference between yields of comparable bonds belonging to sam eor different industry, in terms of maturity, ratings/quality. |
so, it based on the individual yields--which keep changing over time , due to many extraneous issues. |
so, yield spread also ,is prone to changes. |
4.. | ||||||||
Company | No.of shares | Beg.Price/share | End price/sh. | Gain/(Loss) in price/sh. | Div./share | Total return/sh. | Total $ return | Total investment at beg. |
1 | 2 | 3 | 4 | 5=4-3 | 6 | 7=5+6 | 8=7*2 | 9=2*3 |
US Bank | 300 | 43.5 | 43.43 | -0.07 | 2.06 | 1.99 | 597 | 13050 |
PepsiCo | 200 | 59.08 | 62.55 | 3.47 | 1.16 | 4.63 | 926 | 11816 |
JDS Uniphase | 500 | 18.88 | 16.66 | -2.22 | 0 | -2.22 | -1110 | 9440 |
Duke Energy | 250 | 27.45 | 33.21 | 5.76 | 1.26 | 7.02 | 1755 | 6862.5 |
2168 | 41168.5 | |||||||
Return= Holding period return + dividend income | ||||||||
Reading from the above table, | ||||||||
Dollar return= 2168 | ||||||||
% return= $ return/Total investment | ||||||||
2168/41168.5= | ||||||||
5.27% | ||||||||
ANSWER: | ||||||||
$ return= 2168 | ||||||||
% return= 5.27% | ||||||||
5.Price of the bond is the present value of |
its future coupon cash flows+Face value to be recd. At maturity |
ie. Price=PV= (Pmt.*(1-(1+r)^-n)/r)+(FV/(1+r)^n) |
where, |
Pv of cash flows is the price -- to be found out--?? |
Pmt.= the periodic coupon cash flow,ie.1000*3.8%/2= $ 19 , semi-annual |
r= semi-annual market interest rate, ie. 6.8%/2= 3.4% or 0.034 |
n= no.of semi-annual compounding periods, ie. 15 yrs.*2= 30 |
FV= face value , $ 1000 |
So, plugging in the values, in the formula, |
Price=PV= (19*(1-(1+0.034)^-30)/0.034)+(1000/(1+0.034)^30) |
720.63 |
So, Bond price= $ 721 |
It is a discount bond. |
Price < Par |
as YTM or market interest rate > Coupon rate |
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