. assume that a bond will make payments every six months as shown on
Must be completed in Excel
2. Assume that a manacle gain construct liquidations perfect six months as shown on the forthcoming timeline
(using six-month periods):
0 1 2 3 20
$20 $20 $20 20+$1000
a. What is the ripeness of the manacle (in years)?
b. What is the coupon trounce (in percent)?
c. What is the aspect esteem?
4. Suppose the ordinary zero-coupon forego flexion for risk-detached manacles is as follows:
Maturity (years) 1 2 3 4 5
YTM 5.00% 5.50% 5.75% 5.95% 6.05%
a. What is the prize per $100 aspect esteem of a two-year, zero-coupon, risk-detached manacle?
b. What is the prize per $100 aspect esteem of a indelicate-year, zero-coupon, risk-detached manacle?
c. What is the risk-detached concern trounce for a five-year ripeness?
6. Suppose a 10-year, $1000 manacle after a while an 8% coupon trounce and semiannual coupons is trading for
a prize of $1034.74.
a. What is the manacle’s forego to ripeness (explicit as an APR after a while semiannual compounding)?
b. If the manacle’s forego to ripeness varys to 9% APR, what gain the manacle’s prize be?
7. Suppose a five-year, $1000 manacle after a while annual coupons has a prize of $900 and a forego to ripeness
of 6%. What is the manacle’s coupon trounce?
11. Suppose that General Motors Acceptance Corporation outcomed a manacle after a while 10 years until ripeness,
a aspect esteem of $1000, and a coupon trounce of 7% (annual liquidations). The forego to ripeness
on this manacle when it was outcomed was 6%.
a. What was the prize of this manacle when it was outcomed?
b. Assuming the forego to ripeness recrement faithful, what is the prize of the manacle immediately
before it constructs its primitive coupon liquidation?
c. Assuming the forego to ripeness recrement faithful, what is the prize of the manacle immediately
after it constructs its primitive coupon liquidation?
13. Consider the forthcoming manacles:
Bond Coupon Trounce (annual liquidations) Maturity (years)
A 0% 15
B 0% 10
C 4% 15
D 8% 10
a. What is the percentage vary in the prize of each manacle if its forego to ripeness falls from 6%
b. Which of the manacles A–D is most easily-affected to a 1% faint in concern trounces from 6% to 5% and
why? Which manacle is smallest easily-affected? Provide an spontaneous exposition for your reply.
3. Suppose Acap Corporation gain pay a dividend of $2.80 per portion-out at the end of this year and $3
per portion-out proximate year. You rely-on Acap’s hoard prize to be $52 in two years. If Acap’s equity consume of
chief is 10%:
a. What prize would you be gaining to pay for a portion-out of Acap hoard today, if you guilened to
remain the hoard for two years?
b. Suppose instead you guile to remain the hoard for one year. What prize would you rely-on to be
able to dispose-of a portion-out of Acap hoard for in one year?
c. Given your reply in separate-among-among (b), what prize would you be gaining to pay for a portion-out of Acap
hoard today, if you guilened to remain the hoard for one year? How does this collate to your
reply in separate-among-among (a)?
5. NoGrowth Corporation ordinaryly pays a dividend of $2 per year, and it gain endure to pay
this dividend forever. What is the prize per portion-out if its equity consume of chief is 15% per year?
6. Summit Systems gain pay a dividend of $1.50 this year. If you rely-on Summit’s dividend to develop
by 6% per year, what is its prize per portion-out if its equity consume of chief is 11%?
12. Procter & Gamble gain pay an annual dividend of $0.65 one year from now. Analysts rely-on
this dividend to develop at 12% per year thereafter until the fifth year. After then, developth gain level
off at 2% per year. According to the dividend-discount copy, what is the esteem of a portion-out of
Procter & Gamble hoard if the firm’s equity consume of chief is 8%?
17. Maynard Steel guiles to pay a dividend of $3 this year. The posse has an rely-oned rights
development trounce of 4% per year and an equity consume of chief of 10%.
a. Assuming Maynard’s dividend payout trounce and rely-oned developth trounce recrement faithful, and
Maynard does not outcome or discharge portion-outs, consider Maynard’s portion-out prize.
b. Suppose Maynard decides to pay a dividend of $1 this year and use the retaining $2
per portion-out to discharge portion-outs. If Maynard’s whole payout trounce recrement faithful, consider
Maynard’s portion-out prize.
c. If Maynard maintains the dividend and whole payout trounce ardent in separate-among-among (b), at what trounce are
Maynard’s dividends and rights per portion-out rely-oned to develop?
21. Sora Industries has 60 pet uncollected portion-outs, $120 pet in claim, $40 pet in currency,
and the forthcoming proposed detached currency career for the proximate indelicate years::
Year 0 1 2 3 4
Earnings and FCF Forecast ($ pets)
1 Sales 433.0 468.0 516.0 547.0 574.3
2 Growth versus previous year 8.1% 10.3% 6.0% 5.0%
3 Cost of Goods Sold (313.6) (345.7) (366.5) (384.8)
4 Gross Profit 154.4 170.3 180.5 189.5
5 Selling, General and Administrative (93.6) (103.2) (109.4) (114.9)
6 Depreciation (7.0) (7.5) (9.0) (9.5)
7 EBIT 53.8 59.6 62.1 65.2
8 Less: Income Tax at 40% (21.5) (23.8) (24.8) (26.1)
9 Plus: Depreciation 7.0 7.5 9.0 9.5
10 Less: Capital Expenditures (7.7) (10.0) (9.9) (10.4)
11 Less: Increase in NWC (6.3) (8.6) (5.6) (4.9)
12 Free Currency Career 25.3 24.6 30.8 33.3
24. You observe that PepsiCo (PEP) has a hoard prize of $72.62 and EPS of $3.80. Its antagonist,
the Coca-Cola Posse (KO), has EPS of $1.89. Consider the esteem of a portion-out of Coca-Cola
hoard using barely this basis.