Question

# Q4 5.What is the price of a zero-coupon 24-year maturity bond per face (par) value of...

Q4

5.What is the price of a zero-coupon 24-year maturity bond per face (par) value of \$1,000 if the annual market rates for these bonds are 5.9%? Answer to the nearest cent, xxx.xx and enter without the dollar sign.

6.A firm's stock has 50% chance of a 8% rate of return and a  50% chance of a 23% rate of return. What is the standard deviation of return for this stock? Answer as a percent return  to the nearest hundredth of a percent as in xx.xx without entering a percent symbol.

5) Price of zero coupon bond:

M = Face/Par value = 1,000

r = rate of interest = 5.9%

n= number of years until maturity = 24 years

Price of zero coupon bond = M/(1+r)^n

= 1,000/(1+0.059)^24

= 1,000/(1.059)^24

= 1,000/3.958

= 252.65

Price of zero coupon bond = 252.65 (without dollar sign)

6) Calculation of Expected return

 Stock Probability (1) Return (2) Expected return (3) (1*2) A 0.5 8% 4% B 0.5 23% 11.5% Expected return 15.5%

Calculation of standard deviation of stock:

 Probability (1) Return-Expected return (2) Square of Return-Expected return (3) Variance (4) (1*3) 0.5 8%-15.5%=-7.5% or -0.075 (-0.075)^2 = 0.0056 0.0028 0.5 23%-15.5%= 7.5% or 0.075 (0.075)^2 = 0.0056 0.0028 Variance 0.0056

Standard deviation = Square root of Variance

= Square root of 0.0056

= 0.0748 or 7.48 (without percentage symbol)

Standard deviation of stock = 7.48

#### Earn Coins

Coins can be redeemed for fabulous gifts.