Answer:
IF mrs Jones wants to make 14% on the bond this is her required return and what the ytm of the bond should be to make her want to buy the bond. Because the bond pays a coupon of 12% she will want to pay less than the face value of the bond, so that the overall return can be 14%. Whenever the coupon rate of the bond is less than the required return or ytm, the bond is sold at a discount. In order to find at what price should she buy the bond we will need a financial calculator and input the following
FV= 10,000
YTM= 3.5 ( We divide 14 by 4 to find the ytm because the bond has quarterly compounded payments)
PMT= 300 ( We find out the 12% of 10,000 and divide it by 4 because the bond has quarterly payments)
N= 48 (12 years into 4 because there will be a total of 48 quarters and 48 payments)
Put these values in a financial calculator and compute the PV
PV= 8,845
The present value of the bond is 8,845 if the required return is 14% which means she should be willing to pay $8,845 for the bond today.
Explanation:
Answer:
The cost of capital according to CAPM method for Abe will be 12.46%
Their project will be evaluate with this rate.
Explanation:
It will use the CAPM to evaluate the project, as there is no debt, the WACC is not needed.
rf = risk free 0.035
rm = market rate
premium market = (market rate - risk free) = 0.08
beta(non diversifiable risk) 1.12
Ke 0.12460 = 12.46%
You'll earn $761.90 in the acct of the $4,000
And you'll earn $333.33 on the acct of the2,000
So, yes the first one is the answer
