Financial Management is the subject.
Chapter 5 Mini Case 1. What is the value of a 15-year, $1,000 par value bond with a 9 percent annual coupon if its required rate of return is 12 percent? 2. What would be the value of the bond described in number 1 if, just after it had been issued, the expected inflation rate rose by 3 percentage points, causing investors to require a 15 percent return? 3. What would be that bonds' value if inflation fell, and rd declined to 8 percent? 4. What is the yield to maturity on a 12-year, 8 percent annual coupon, $1,000 par value bond that sells for $887.00? That sells for $1,134.20? a. What is the yield-to-maturity, current yield, and capital gains yield for the discount bond? b. What is the yield-to-maturity, current yield, and capital gains yield for the premium bond? 5. Find the value of a 20-year, 10 percent coupon bond if r = 12%. 6. Suppose a 10-year, 12 percent coupon bond with a par value of $1,000 is currently selling for $1,135.90, producing a yield to maturity of 8 percent. However, the bond can be called after 5 years for a price of $1,050. What is the bond's yield to call (YTC)? 7. The inflation rate is expected to be 7% next year, fall to 5% the next year, 4% the third and year and 3% thereafter. The real risk-free rate r* will remain at 3% and the maturity risk premiums on Treasury securities rise from zero on very short-term securities (few days) to .2 percentage points for one-year securities. It will rise by .2 percentage points for each year up to a maximum of 1.0 percentage point on 5-year or longer treasury notes or bond. a. Calculate the interest rate on 1, 2 3,4,5,6,8,10, and 20-year Treasury securities