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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?

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