Homework 5

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Question 1

/ 1 pts

The Green Cable Corporation issued a new series of bonds on January 5, 2015. The bonds were sold at par ($1,000), have a 6% coupon rate, and mature in 30 years on December 31, 2044. Coupon interest payments are made semiannually (on June 30 and December 31).

What was the yield to maturity (YTM) of the bond on January 5, 2015?

12%
Correct Answer

 

6.09%

None of the above.

Question 2

/ 1 pts

The Green Cable Corporation issued a new series of bonds on January 5, 2015. The bonds were sold at par ($1,000), have a 6% coupon rate, and mature in 30 years on December 31, 2044. Coupon interest payments are made semiannually (on June 30 and December 31).

Assuming that interest rates had fallen to 5%, what was the price of the bond on January 1, 2020 (five years later)?

$1000.00

$1300.00
Correct Answer

 

$1141.81

Question 3

1 / 1 pts

The Green Cable Corporation issued a new series of bonds on January 5, 2015. The bonds were sold at par ($1,000), have a 6% coupon rate, and mature in 30 years on December 31, 2044. Coupon interest payments are made semiannually (on June 30 and December 31).

On July 1, 2017, the bonds sold for $922.38. What was the current yield at sale on that date?

None of the above.
Correct!

 

3.25% semiannually

12%

6.73%

Question 4

1 / 1 pts
Mr. Gonzalez wishes to sell a bond that has a face value of $1,000. The bond bears an interest rate of 8% with bond interest payable semiannually. Four years ago, $920 was paid for the bond. At least a 9% return (yield) on the investment is desired. What must be the minimum selling price?
Correct!

 

$933.13

Cannot be determined.

$1000

$920.00

Question 5

1 / 1 pts
Consider a stock with a price on May 1, 2015 of $72/share. The expected cash dividend in 2016 is $2.00 a share and is expected to grow 8% for the next 5 years. If you expect to sell your stock in 3 years for $95/share and the current interest rate is 10%, what is the current value of the stock?
Correct!

 

$76.73

$101.00

$75.88

$72.00

Question 6

1 / 1 pts
 The Bulldog Company paid $1.5 of dividends this year. If its dividends are expected to grow at a rate of 3 percent per year, what is the expected dividend per share for Bulldog five years from today?

$1.65

None of the above.
Correct!

 

$1.74

$1.55

Question 7

1 / 1 pts
The value of Foo Company’s shares is $10 with a dividend of $3 per share. It is expected that the market value of the share will increase 5 percent (hint: this is growth in the share price not the dividend) . What is the present value of this share at year one if the discount rate is 8 percent?

$10.00

None of the above.

$13.50
Correct!

 

$12.50

Question 8

1 / 1 pts

You plan to buy a $250,000 home with a 20% down payment. The bank you want to finance the loan through suggests two options: a 15-year mortgage at 4.25% APR and a 30-year mortgage at 5% APR. What is the difference in monthly payments between these two options?

(A/P, 5%/ 12, 360) = 0.0053682 and (A/P, 5%/12, 180) = 0.0075228

None of the above.
Correct!

 

$430.92

$634.25

$1504.56

Question 9

1 / 1 pts

On a $400,000 home mortgage loan with a 15-year term at 9% APR compounded monthly, compute the total combined payments on principal and interest over the first five years of ownership.

 

(A/P, 9%/12, 180) = 0.010143

Correct!

 

$243,424.20

$4057.07

$320,271.97

$79,728.03

Question 10

1 / 1 pts

On a $400,000 home mortgage loan with a 15-year term at 9% APR compounded monthly, what is the remaining balance at the end of 5 years.

(A/P, 9%/12, 180) = 0.010143,  (P/A, 9%/12, 120) = 78.941692

None of the above.

$243,424.20
Correct!

 

$320,271.97

$156575.80

Question 11

1 / 1 pts

Suppose you have the choice of investing in one of the following.

  1. Option 1: A zero-coupon bond which costs $513.60 today, pays nothing during its life, and then pays $1,000 after five years.

  2. Option 2: A bond that costs $1,000 today, pays $113 in interest semiannually and matures at the end of five years with a par value of $1,000 to be repaid.

Which bond would provide the higher yield?

Option 1
Correct!

 

Option 2

Cannot be determined

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