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Finance questions 1. What are coupon payments, and what is

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Finance questions

1. What are coupon payments, and what is a coupon rate?

2. Define the following terms: bond indenture, par value, principal, maturity, call provision, and
sinking fund.

3. What does the term payout ratio mean?

4. A corporate bond is quoted at a price of 102. What is its dollar price?

5. What is interest-rate risk? How is interest-rate risk related to the maturity of a bond and to
the coupon rate for a bond?

6. (Required return) According to the CAPM, what would be the required return on an asset
that has a beta of 1.35 when the expected return on the market portfolio is 12% and the
riskless return is 7%?

7. (Required return) According to the CAPM, what would be the required return on an asset
that has a beta of 1.25 when the expected return on the market portfolio is 12% and the
riskless return is 5%?

8. (CAPM) The required return on an asset with a beta of 1.4 is 17% and the riskless return
is 7%. What is the expected return on the market portfolio?

9. (CAPM) Stock A has a beta of 2.0 and a required return of 15%. The market return is
10%. What will be the required return on stock B, which has a beta of 1.4?

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1. What are coupon payments, and what is a coupon rate?

Coupon payment is an interest payment that is paid by the issuer/owner and is received by a bondholder during the period between when the bond is issued and until the bond is matured.

Coupon rate is the stated interest rate that the bond issuer agreed to pay the bondholders, in most cases, the interest rate is fixed.

2. Define the following terms: bond indenture, par value, principal, maturity, call provision, and
Sinking fund:

Bond indenture: a written agreement or contract between the owner of the bond (bond issuer) and the bondholder that specifies the term of the bond such as interest rate, coupon rate, maturity date, and other related terms.

Principal: The face amount of a bond

Maturity: The specific date in the future on when the investorââ?¬â?¢s principal will be repaid by the bond issuer.

Call ...

$2.19
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Problem 1-8: We can imagine the financial manager doing several things on behalf of the firm's stockholders. For example, the manager might:
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But in well-functioning capital markets, shareholders will vote for only one of these goals. Which one? Why?

Problem 2-9:
A. The cost of an automobile is $10,000. If the interest rate is 5%, how much would you have to set aside now to provide this sum in five years?
B. You have to pay $12,000 a year in school fees at the end of each of the next six years. If the interest rate is 8%, how much do you set aside today to cover these bills?
C. You have invested $60,476 at 8%. After paying the above school fees, how much would you remain at the end of six years?

Problem 2-12: "What is the PV of $100 received in:
A. Year 10 (at a discount rate of 1%)
B. Year 10 (at a discount rate of 13%)
C. Year 15 (at a discount rate of 25%)
D. Each of years 1 through 3 (at a discount rate of 12%)?"

Problem 3-3: In February 2009 Treasury 6s of 2026 offered a semiannually compounded yield of 3.5985%. Recognizing that coupons are paid semiannually, calculate the bond's price.

Problem 3-4: Here are the prices of three bonds with 10-year maturities:

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2 81.62
4 98.39
8 133.42

If coupons are paid annually, which bond offered the highest yield to maturity?
Which had the lowest?
Which bonds had the longest and shortest durations?

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