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MArishka [77]
2 years ago
10

Chris purchased a 10 year 100 par value bond where 6% coupons are paid semiannually. Cheryl purchased a 100 par value bond where

6% coupons are paid semiannually. There is no maturity date or redemption value for Cheryl’s bond. Cheryl paid $100 for her bond. The yield for Chris’s bond is 80% of the yield for Cheryl’s bond. How much did Chris pay for his bond?
Business
1 answer:
WITCHER [35]2 years ago
8 0

Answer:

Chris paid $109.68 for his bond. Since he paid a premium for the bond, the YTM is lower than the coupon rate.

Explanation:

yield of Cheryl's bond is 6% since she purchased it at par and the bond's coupon is 6%

if Chris's bond yields 80% of Cheryl's, it will yield 6% x 0.8 = 4.8%

we can use the approximate yield to maturity formula to find the market price of Chris's bond:

2.4%(semiannual) = {3 + [(100 - MV)/20]} / [(100 + MV)/2]

0.024 x [(100 + MV)/2] = 3 + [(100 - MV)/20]

0.024 x (50 + 0.5MV) = 3 + 5 - 0.05MV

1.2 + 0.012MV = 8 - 0.05MV

0.062MV = 6.8

MV = 6.8 / 0.062 = 109.68

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Answer:

1.74%

Explanation:

                               17% Debt       50% Debt

Sales                      $500,000      $500,000

Less: Cost              $450,000      $450,000

Less: Interest         <u>$5,546</u>           <u>$17,400</u>

Profit before tax   $44,454        $32,600

Less: Tax at 35%  <u> $15,559</u>          <u>$11,410</u>

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Equity                     $361,050        $217,500

Return on Equity   8.00%             9.74%

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Workings

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Interest (50% Debt) = 43,500*50%*8% = $17,400

Tax (17% Debt) = $44,454 * 0.35 = 15,559

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Equity (50% Debt) = 435,000*50% = $217,500

Return on Equity = $28,895/$361,050 = 8.00%

Return on Equity = $21,190/$217,500 = 9.74%

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2 years ago
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Stock pick. An active portfolio management approach that focuses on a favorable selection of specific stocks rather than broad asset allocation.

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The question is incomplete. Please read below to find the missing content.

Investors select a stock based on the case they expect to receive from that stock. That cash comes in the form of ____.

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7 0
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Answer:

Note: <em>The complete question is attached as picture below</em>

1a. The one year spot rate can be calculated using the one year zero bond.

PV * (1 + S1) = FV

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S1 = 1.1111 - 1

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