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Stocks and Bonds

A) What is the price of a 10-year US Treasury STRIP that makes a single payment of $10,000 if the discount rate is 5% effective annual yield?

b) Alpha Company. has just issued a traditional 3 year 6% coupon bond that makes coupon payments twice a year at a price of 97. What is the yield to maturity on the bond?

c) Beta Company has just a paid a dividend of $2.00 per share. You expect the dividend to grow forever at a rate of 4% a year. If you use a 10% discount rate, what is the value today of Company B?

d) Delta Company. has a beta of 1.5. If the expected return on the market is 6% and the risk free rate is 3%, what is the expected rate of return on Delta Company stock if the CAPM (Capital Asset Pricing Model) holds?

Solution Summary

The solution includes excel and word files that show a detailed solution for the following problems:

Price of a 10-year US Treasury STRIP
Alpha Company Yield to Maturity
Beta Company Value of the Company
Delta Company Expected Rate of Return