Question

Please answer!!

Based on your answers in (a) through (e) which project will you finally choose? Why Question 3 PJ Morgan issued 10-year bonds at a coupon rate of 10 percent. The bonds make quarterly payments. The yield-to- maturity on these bonds is also 13 percent. What is the current bond price? Discuss the three caveats as it relates interest rates and coupon rates What is yield to maturity? Question 4 JB Company can do the following projects, however they are trying to determine which is least risky to undertake. Help them to rank the projects from least risky to highest risk Projects Returns (Expected Value) $300,000 $574,000 $88,000 $125,000 Standard Deviation $138,000 $403,000 $40,000 $27,000

Answer 1

10 2 time to maturity 3 coupon rate 4 frequency of coupons 5 yield to maturit 6 par value 7 annaul coupon value 4 0.13 1000 100 9 current bond price 833.44 11 3 Caveats 12 1) when coupon rate > yield to maturity price of bond> par value, bond is a premium bond 13 2) when coupon rate-yield to maturity, price of bond par value, bond is at par 14 3) when coupon rate <yield to maturity, price of bond par value, bond is a discount bond 16 yield to maturity is the rate of return earned by the investor when the bond is held till maturity 17 18 4) 19 20 risk as measured by standard deviation, gives the following rank to projects from least risky to highest risk 21 22 D>C>A>B 23 where, D has the least risk (standard deviation) and B has the highest risk (standard deviation)

10 2 time to maturity 3 coupon rate 4 frequency of coupons 5 yield to maturit 6 par value 7 annaul coupon value 4 0.13 1000 B3 B6 --PV(B5/B4,B2*B4,B7/B4,B6) 9 current bond price 11 3 Caveats 12 1) when coupon rate > yield to maturity, price 13 2) when coupon rate yield to maturity, price 14 3) when coupon rate yield to maturity, price 16 yield to maturity is the rate of return earned b 17 18 4) 19 20 risk as measured by standard deviation, gives 21 22 D>C>A>B 23 where, D has the least risk (standard deviatior