Financial Management
Respond to the items below.
Part A: Moore Company is about to issue a bond with semiannual coupon payments, a coupon rate of 8%, and par value of $1,000. The yield-to-maturity for this bond is 10%.
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a. ; What is the price of the bond if the bond matures in 5, 10, 15, or 20 years?
b. ; What do you notice about the price of the bond in relationship to the maturity of the bond?
Part B: The Crescent Corporation just paid a dividend of $2 per share and is expected to continue paying the same amount each year for the next 4 years. If you have a required rate of return of 13%, plan to hold the stock for 4 years, and are confident that it will sell for $30 at the end of 4 years, how much should you offer to buy it at today?
Part C: Use the information in the following table to answer the questions below.
State of Economy |
Probability of State |
Return on A in State |
Return on B in State |
Return on C in State |
Boom |
.35 |
0.040 |
0.210 |
0.300 |
Normal |
.50 |
0.040 |
0.080 |
0.200 |
Recession |
.15 |
0.040 |
-0.010 |
-0.260 |
a. ; What is the expected return of each asset?
b. ; What is the variance of each asset?
c. ; What is the standard deviation of each asset?