VIX Strategy Inc has 7 4 coupon bonds on the market with 13 years to maturity The bonds make semiannual payments and currently sell for 77 6 of par 1 What is the current yield on the bonds 2 What is the YTM 3 What is the Effective Annual Yield EAR Ponzi Corporation has bonds on the market with 14 5 years to maturity a YTM of 6 1 and a current price of 1 038 The bonds make semiannual payments What must the coupon rate be on these bonds Midterm 2013 24 Fresh Foods just paid an annual dividend of 3 10 a share and is expected to increase that amount by 4 percent per year If you are planning to buy 1 000 shares of this stock next year how much should you expect to pay per share if the market rate of return for this type of security is 12 percent at the time of your purchase The BUAD Corporation is trying to choose between the following two mutually exclusive projects If the required rate of return is 10 what is the profitability index for both projects If the company uses the PI rule which one would they accept If the company uses the NPV rule which one would they accept What if the company uses IRR Conceptual Questions about Bonds 1 If the interest rate rises what happens to prices What happens if a rating agency downgrades a bond 2 Suppose a firm experiences worse than expected sales and moves closer to defaulting on its interest payments to bond holders What will happen to the term structure of interest rates 3 Suppose a firm issues 2 identical bonds C and D except that bond C is callable and is junior debt whereas bond D is not callable and is senior debt Which bond should have a higher coupon Conceptual Questions about Stocks 1 If firm declares it will never pay any dividends and there are 1 000 shares outstanding what is the current price of a share of this stock 2 Now suppose the firm announces they plan to pay one dividend share in 3 years worth 4 30 and nothing thereafter Suppose the discount rate is 10 What is the current price of this share What is the price in year 4 3 Suppose a stock is trading at 1 000 share today In 30 years you expect to sell it for 1000 You expect to receive a 5 dividend each year for the next 30 years What other type of financial security has a similar payoff structure
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