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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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2 years ago
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Answer:

$519,799.59

Explanation:  

Discount rate = R = 14.50%

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3           238,000.00          0.666168            <u>158,547.9011</u>

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Charlie sells cookies only in packages of 10. It costs him $3.50 in materials per package. Additionally, he has overhead costs o
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Let x represent the number of packages Charlie needs to sell to make a monthly income of $5, 000 
Since he sells cookies only in packages of 10 then he has to sell 10x to make that income. But Charlie has expenses that has to be deducted from his total sales to make that figure.  
So the total expenses is $1, 500 in overhead and an extra $3.50 per material per package. So the total expenses = 1500 + 3.50x 
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5 0
3 years ago
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Nazem also recently bought bonds that have their interest rate tied to the consumer price index (CPI) so that he will be protected if inflation rates increase. Nazem has invested in purchasing power bond .

8 0
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