Question

Assume that you are nearing graduation and have applied for a job with a local bank....

Assume that you are nearing graduation and have applied for a job with a local bank. The bank’s evaluation process requires you to take an examination that covers several financial analysis techniques. Answer the given questions.

Answer the given questions.

Question 1. What is the present value of the following uneven cash flow stream $50, $100, $75, and -$50 at the end of Years 0 through 3? The appropriate interest rate is 10%, compounded annually.

Question 2. Suppose that, on January 1, you deposit $100 in an account that pays a nominal (or quoted) interest rate of 8.125%, with interest added (compounded) daily. How much will you have in your account on October 1, or 9 months later?

Use the following information for Questions 3 and 4:
A firm issues a 10-year, $1,000 par value bond. The required rate of return is 10%.

Question 3. What is the yield to maturity on a 10-year, 9% annual coupon, $1,000 par value bond that sells for $878.00? Another bond that sells for $1,134.20? What does a bond selling at a discount or at a premium tell you about the relationship between rd and the bond’s coupon rate?

Question 4. What are the total return, the current yield, and the capital gains yield for the discount bond in Question 3 at $878.00? At $1,134.20? (Assume the bond is held to maturity and the company does not default on the bond.)

PLEASE ANSWER QUESTION #3

Homework Answers

Answer #1

3. The YTM is computed as shown below:

Plug the below variables in the financial calculator as follows:

N = 10

FV = 1,000

PV = - 878

PMT = 90 (9% x 1,000)

Finally press CPT and then press I/Y. It will give I/Y equal to 11.08% Approximately

YTM if the price is $ 1,134.20 is computed as follows:

Plug the below variables in the financial calculator as follows:

N = 10

FV = 1,000

PV = - 1,134.20

PMT = 90 (9% x 1,000)

Finally press CPT and then press I/Y. It will give I/Y equal to 7.08% Approximately

If the bond sells at a premium, the bond's coupon rate is always greater than the rd and if the bond sells at a discount, the bond's coupon rate is always less than the rd.

Feel free to ask in case of any query relating to this question      

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Assume that you are nearing graduation and have applied for a job with a local bank....
Assume that you are nearing graduation and have applied for a job with a local bank. The bank’s evaluation process requires you to take an examination that covers several financial analysis techniques. Answer the given questions. Answer the given questions. Question 1. What is the present value of the following uneven cash flow stream $50, $100, $75, and -$50 at the end of Years 0 through 3? The appropriate interest rate is 10%, compounded annually. Question 2. Suppose that, on...
Assume that you are nearing graduation and have applied for a job with a local bank....
Assume that you are nearing graduation and have applied for a job with a local bank. As part of the bank’s evaluation process, you have been asked to take an examination that covers several financial analysis techniques. The first section of the test addresses discounted cash flow analysis. See how you would do by answering the following questions. a. Draw time lines for (1) a $100 lump sum cash flow at the end of Year 2, (2) an ordinary annuity...
Case# 2    Assume that you are nearing graduation and have applied for a job with...
Case# 2    Assume that you are nearing graduation and have applied for a job with a local bank. As part of the bank’s evaluation process, you have been asked to take an examination that covers several financial analysis techniques. The first section of the test addresses discounted cash flow analysis. See how you would do by answering the following questions. a. If Waris just got retirement. His company pension plan will pay him $2000 at the end of each...
Time Value of Money Assume that you are nearing graduation and that you have applied for...
Time Value of Money Assume that you are nearing graduation and that you have applied for a job with a local bank. As part of the bank’s evaluation process, you have been asked to take an examination that covers several financial analysis techniques. The first section of the test addresses the time value of money. See how you would do by answering the following questions. Required 1. The basic present value equation has four parts. What are they? Explain. ​...
QUESTION 24 Questions 24 to 27: Bill Jennings made the following statements regarding zero coupon bonds...
QUESTION 24 Questions 24 to 27: Bill Jennings made the following statements regarding zero coupon bonds and the term structure of interest rates. Statement 1: bond that sells at par consists entirely of an interest yield. However, if the bond sells at any price other than its par value, the YTM consists of the interest yield together with a positive or negative capital gains yield. Statement 2: A downward-sloping term structure of interest rates indicates long-term yield are higher than...
adsen Motors's bonds have 14 years remaining to maturity. Interest is paid annually, they have a...
adsen Motors's bonds have 14 years remaining to maturity. Interest is paid annually, they have a $1,000 par value, the coupon interest rate is 12%, and the yield to maturity is 15%. What is the bond's current market price? Round your answer to the nearest cent. A bond has a $1,000 par value, 10 years to maturity, and a 7% annual coupon and sells for $985. What is its yield to maturity (YTM)? Round your answer to two decimal places....
Question 1 a. A bond that pays interest semiannually is selling for 100% of its $1,000...
Question 1 a. A bond that pays interest semiannually is selling for 100% of its $1,000 par value. The bond has a 4% coupon rate and paid a coupon 1 month ago. What is this bond's invoice price? b.A bond has a $1,000 par value,10 years to maturity, a 4.5% coupon, and currently sells for $1,037. The bond pays coupons semiannually. The bond is callable 3 years from today with a call price of $1,020. What is this bond's yield...
Hello, Can you please answer this question with showing work. A four-year bond has an 8%...
Hello, Can you please answer this question with showing work. A four-year bond has an 8% coupon rate and a face value of $1,000. If the current price of the bond is $870.51, calculate the yield to maturity of the bond (assume annual interest payments). Also, indicate whether the bond is a discount bond or a premium bond or a par bond. Thanks
YIELD TO MATURITY Harrimon Industries bonds have 5 years left to maturity. Interest is paid annually,...
YIELD TO MATURITY Harrimon Industries bonds have 5 years left to maturity. Interest is paid annually, and the bonds have a $1,000 par value and a coupon rate of 10%. What is the yield to maturity at a current market price of $854? Round your answer to two decimal places.    % $1,136? Round your answer to two decimal places.    % Would you pay $854 for each bond if you thought that a "fair" market interest rate for such bonds was...
Harrimon Industries bonds have 4 years left to maturity. Interest is paid annually, and the bonds...
Harrimon Industries bonds have 4 years left to maturity. Interest is paid annually, and the bonds have a $1,000 par value and a coupon rate of 10%. a. What is the yield to maturity at a current market price of 1. $898? Round your answer to two decimal places. 2. $1,103? Round your answer to two decimal places. b. Would you pay $898 for each bond if you thought that a "fair" market interest rate for such bonds was 12%—that...