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dsp73
3 years ago
8

Laurel, Inc., and Hardy Corp. both have 10 percent coupon bonds outstanding, with semiannual interest payments, and both are cur

rently priced at the par value of $1,000. The Laurel, Inc., bond has six years to maturity, whereas the Hardy Corp. bond has 19 years to maturity.If interest rates suddenly rise by 2 percent, what is the percentage change in the price of each bond?
Business
1 answer:
LenaWriter [7]3 years ago
4 0

Answer:

Laurel = -8.38%

Hardy = -14.85%

Explanation:

Present Price of Bond :

Laurel, Inc. = $1000

Hardy Corp. = $1000

After Percentage Price would be

Laurel, Inc = Present Value (i=6%, n=12, PMT=50, FV=1000)  = $916.16

Hardy Corp = Present Value (i=6%, n=30, PMT=50, FV=1000)  = $851.54

Percentage change in price

Laurel, Inc = (916.16-1000)/1000 = -8.38%

Hardy Corp = (851.54-1000)/1000 = -14.85%

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Answer: 27.28 units

Explanation:

From the question, we are told that a company wants to determine its reorder point (R) and that demand is variable and they want to build a safety stock into R. We have also been given the information that the company wants to have a service level of 95 percent and that average daily demand is 8, lead time is 3 days and the standard deviation of demand during lead time is 2.

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Based on the U.S. Treasury bond rate, the market return and the beta, Davcher's expected rate of return would be 6.5%.

<h3>What is the expected rate of return?</h3>

Using the Capital Asset Pricing Model (CAPM), the expected rate of return would be:

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