Question

Norma has one share of stock and one bond. The total value of the two securities is 1,298.97 dollars. The stock pays annual dividends. The next dividend is expected to be 3.59 dollars and paid in one year. In two years, the dividend is expected to be 6.58 dollars and the stock is expected to be priced at 124.1 dollars. The stock has an expected return of 16.6 percent per year. The bond has a coupon rate of 10.58 percent and a face value of 1,000 dollars; pays semi-annual coupons with the next coupon expected in 6 months; and matures in 14 years. What is the YTM of the bond? Answer as a rate in decimal format so that 12.34% would be entered as .1234 and 0.98% would be entered as .0098.

Answer #1

It is given that the,

price of one bond + price of stock =1298.97

Now to calculate the ytm of bond we need to calculate the price of bond, and for the same we need to first find the value of stock

Value of stock is the discounted value of all the future cash flows

Value of stock = 3.59 / 1.166 + 6.58 /1.166^2 + 124.1 / 1.166^2

= 3.08 + 4.84 + 91.28

= $99.20

Price of bond = 1298.97 - 99.20

= 1199.77

ytm can be calculated by the approximate formula as given below.

ytm = [C + ( F - P) / N ] / ( F + P) / 2

Where C is the coupon = 105.8 for year and 52.9 semiannually

F= Face value = 1000

P = Price of bond = 1199.77

N = Periods to maturity

ytm = [ 52.90 + ( 1000 - 1199.77 )/28 ] / ( 1000 + 1199.77) / 2

= [52.90 - 199.77/28 ] / 2199.77 / 2

= (52.90 - 7.13 ) /1099.885

= **4.16%**

**yearly ytm = 8.32%**

Norma has one share of stock and one bond. The total value of
the two securities is 1,321.7 dollars. The stock pays annual
dividends. The next dividend is expected to be 4.55 dollars and
paid in one year. In two years, the dividend is expected to be 8.18
dollars and the stock is expected to be priced at 102.07 dollars.
The stock has an expected return of 14 percent per year. The bond
has a coupon rate of 10.9 percent...

Court has one share of stock and one bond. The total value of
the two securities is 1,376 dollars. The bond has a YTM of 8.9
percent, a coupon rate of 11.64 percent, and a face value of 1,000
dollars. The bond matures in 13 years and pays annual coupons with
the next one expected in 1 year. The stock is expected to pay an
annual dividend every year forever, the next dividend is expected
to be 10.91 dollars in...

Dewey has one share of stock and one bond. The total value of
the two securities is $1,050. The bond has a YTM of 18.60 percent,
a coupon rate of 12.40 percent, and a face value of $1,000; pays
semi-annual coupons with the next one expected in 6 months; and
matures in 6 years. The stock pays annual dividends that are
expected to grow by 1.73 percent per year forever. The next
dividend is expected to be $18.10 and paid...

Dewey has one share of stock and one bond. The total value of
the two securities is $1,050. The bond has a YTM of 18.60 percent,
a coupon rate of 12.40 percent, and a face value of $1,000; pays
semi-annual coupons with the next one expected in 6 months; and
matures in 6 years. The stock pays annual dividends that are
expected to grow by 1.73 percent per year forever. The next
dividend is expected to be $18.10 and paid...

1. Castor owns one bond A and one bond B. The total value of
these two bonds is 2,593.9 dollars. Bond A pays semi-annual
coupons, matures in 14 years, has a face value of 1,000 dollars,
and pays its next coupon in 6 months. Bond B pays annual coupons,
matures in 15 years, has a face value of 1,000 dollars, has a
yield-to-maturity of 4.98 percent, and pays its next coupon in one
year. Both bonds have a coupon rate...

HW9 #7)
Castor owns one bond A and one bond B. The total value of these
two bonds is 2,473.41 dollars. Bond A pays semi-annual coupons,
matures in 15 years, has a face value of 1,000 dollars, and pays
its next coupon in 6 months. Bond B pays annual coupons, matures in
17 years, has a face value of 1,000 dollars, has a
yield-to-maturity of 7.08 percent, and pays its next coupon in one
year. Both bonds have a coupon...

#1) Cy owns investment A and 1 bond B. The total value of his
holdings is 900 dollars. Bond B has a coupon rate of 4.9 percent,
par value of $1000, YTM of 10.5 percent, 22 years until maturity,
and semi-annual coupons with the next coupon due in 6 months.
Investment A is expected to produce annual cash flows forever. The
next cash flow is expected to be 60.4 dollars in 1 year, and
subsequent annual cash flows are expected...

1. Maritza has one share of stock and one bond. The total value
of the two securities is 1,068 dollars. The bond has a YTM of 12.58
percent, a coupon rate of 11.76 percent, and a face value of 1,000
dollars; pays semi-annual coupons with the next one expected in 6
months; and matures in 13 years. The stock pays annual dividends
and the next dividend is expected to be 6.41 dollars and paid in
one year. The expected return...

2. Today, a bond has a coupon rate of 8.4 percent, par value of
1,000 dollars, YTM of 4.82 percent, and semi-annual coupons with
the next coupon due in 6 months. One year ago, the bond’s price was
1,041.94 dollars and the bond had 17 years until maturity. What is
the current yield of the bond today? Answer as a rate in decimal
format so that 12.34% would be entered as .1234 and 0.98% would be
entered as .0098.
3....

Arjen owns investment A and 1 bond B. The total value of his
holdings is 1,157 dollars. Investment A is expected to pay annual
cash flows to Arjen of 128.37 dollars per year with the first
annual cash flow expected later today and the last annual cash flow
expected in 3 years from today. Investment A has an expected return
of 16.42 percent. Bond B pays semi-annual coupons, matures in 19
years, has a face value of $1000, has a...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 1 minute ago

asked 1 minute ago

asked 9 minutes ago

asked 19 minutes ago

asked 36 minutes ago

asked 42 minutes ago

asked 55 minutes ago

asked 57 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago