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College Finance Assignment: Bond Valuation, Portfolio Management, and Investment Analysis

An assignment focused on bond valuation, portfolio management, and investment analysis in the context of college finance.

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    College Finance Assignment: Bond Valuation, Portfolio Management, and Investment Analysis, page 1College Finance Assignment: Bond Valuation, Portfolio Management, andInvestment AnalysisHomework 28 questions1.If the coupon rate is less than the yield to maturity, the bond will:a. sell at parb. sell at premiumc. sell at discountAnswer: c. sell at discount2. ABC Inc. issued twelve-year, 6 percent semi-annual coupon bonds at par. Today, the bondsare priced at $1112. What is the firm’s after-tax cost of debt if the tax rate is 30%?Answer: Cost of debt (after tax) = YTM × (1-tax rate). To calculate YTM:••You need to calculate the YTM from the given values, and then adjust it for taxes.3.You have observed the following returns on ABC's stocks over the last six years:3.3%, 5.4%, 18.9%,-12.1%, 3.5%,-8.8%What is thegeometric average returns on the stock over this six-year period.Answer:••Calculate the product of (1 + returns foreach year) and then take the nth root, where n =6.

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    College Finance Assignment: Bond Valuation, Portfolio Management, and Investment Analysis, page 2

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    College Finance Assignment: Bond Valuation, Portfolio Management, and Investment Analysis, page 34.Suppose that today's stock price is $52.8. If the required rate on equity is 12.2%andthe growth rate is 7.1%, compute the expected dividend (i.e. compute D1)•Answer:5.TheABC Co. has $1,000 face value stock outstanding with a market price of $1,017.2.The stock pays interest annually, matures in11 years, and has a yield to maturity of 9.9percent. What is the annual coupon amount?6.Abondthatsellsforlessthanfacevalueiscalledas:a. par value bondb.perpetuityc. premium bondd. debenturee. discount bondAnswer: e. discount bond7.ThecommonstockofABCIndustriesisvaluedat$26.7ashare.Thecompanyincreasestheirdividendby7.4percentannuallyandexpectstheirnextdividendtobe$2.56.Whatistherequiredrateofreturnonthisstock?Answer:8.Suppose the real rate is 5.65% and the inflation rate is 5.02%. Solve for the nominalrate.

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