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riadik2000 [5.3K]
3 years ago
8

Short Term Inc. has issued zero-coupon bonds that mature in one year. The returns from holding these bonds have a beta of 0.25.

There is a chance of 70% that the bonds will pay full value, and a chance of 30% that they will only be worth 60 cents for each dollar of face value.Assume that the CAPM holds, that the riskless rate is 5% and that the expected return on the market is 15%.1) What is the current price of the bonds, per $100 face value?2) What is the yield to maturity on the bonds?3) What is the expected return on the bonds?
Business
1 answer:
Nataly [62]3 years ago
6 0

Answer:

1. Current bonds price = $81.86.

2. Yield to maturity  = 22.16%.

3. 3.  Expected Return = 7.5%.

Explanation:

Required Rate = Rf + beta*MRP

          = 5% + 0.25*(15% - 5%)

       = 5% +0.25*10%

              = 5% + 2.5% = 7.5%

 Required Rate = 7.5%

  Expected Future Value = 70% x $100 + 30% x $60

       = (0.7*$100) + (0.3*$60)

       = $(70+18) = $88

    Expected Future Value = $88

1.  Current bonds price = 88/1.075 = $81.86

2.  Yield to maturity = 100/81.86 - 1 = 1.22159785-1 = 0.22159785 =   22.159785% = 22.16%

3.  Expected Return = 7.5%

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the amount of Kanban containers  = 3000( 0.2 + 0.1) ( 1+ 0.10)/ 150

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the amount of Kanban containers  =  990/150

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SO we can infer that the amount of Kanban containers would Jewel require if a 10% policy variable is used falls within the range of  six or seven.

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3 years ago
Explain how the costs of poor quality can affect competitiveness.
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The competitiveness of a good usually depends on two key factors: its price, and its quality. While poor quality goods are less competitive from a quality perspective but poor quality goods are usually cheaper to produce resulting to a lower final price. So overall, the lower the cost and the higher the quality the more competitive a good is.
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3 years ago
) when originally issued, an investment in bonds of Flushing Dough, Inc., promised to provide an annual coupon of 7.50%. The bon
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Answer:

The likely yield to maturity on the bonds is 10.23%.

Explanation:

The likely yield to maturity on the bonds can be calculated using the following RATE function in Excel:

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Where;

YTM = likely yield to maturity on the bonds = ?

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Inputting =RATE(40,75,-735,1000) into a cell in an excel (Note: as done in the attached excel file), the YTM is obtained as 10.23%.

Therefore, the likely yield to maturity on the bonds is 10.23%.

Download xlsx
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