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[DOC File]Quantitative Problems Chapter 10
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1. A bond pays $80 per year in interest (8% coupon). The bond has 5 years before it matures at which time it will pay $1,000. Assuming a discount rate of 10%, what should be the price of the bond (Review Chapter 3)? 2. A zero coupon bond has a par value of $1,000 and matures in 20 years. Investors require a 10% annual return on these bonds.
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[DOC File]CHAPTER 7
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If a 10-year, $1,000 par, zero coupon bond were issued at a price that gave investors a 10 percent rate of return, and if interest rates then dropped to the point where kd = YTM = 5%, we could be sure that the bond would sell at a discount below its $1,000 par value.
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[DOC File]INFLATION, CASH FLOWS AND DISCOUNT RATES
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Keep in mind that the yield to maturity is the average per period rate of return on the Aurora bonds if held to maturity (and there is no default). To compute a bond’s yield to maturity y using Excel, employ the IRR function; let V (e.g., $92,059,013) be the initial outlay and the be the cash returns on the investment.
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[DOCX File]Formula Sheet for FNCE 4070 – midterm 1
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The real interest rate is equal to the nominal interest minus the expected inflation rate Return on a bond There’s no formula here but you need to be able to do this.
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[DOC File]Introduction to Interest Rate Risk
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The following example is used to calculate the duration of a 5-year $1000 bond, with a 6% coupon rate (with interest payments made annually (Not semiannually - as is the usual case). This bond as a current required rate of return of 9%.
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[DOC File]Expected returns and promised returns on debt in the cost ...
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The expected return on the equity is (given by 75/55) 36%. The expected return on the debt is (given by 75/65) 15%. The WACC, based on the expected return on debt is 0.46*36% + 0.54*15% = 25%. This is the same as the correct rate to discount the operating cash flows to get the enterprise value of the firm.
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[DOC File]Chapter 13 The Cost of Capital
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higher the potential growth rate. The formula is therefore: g = bre. Where re = accounting rate of return or ROCE or ROI. b = earnings retention rate 2.5.4 Example 6. A company is about to pay an ordinary dividend of 16c a share. The share price is 200c. The accounting rate of return on equity is 12.5% and 20% of earnings are paid out as dividends.
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[DOC File]Dividend discount model (a
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The three variables represented in this formula are: C = coupon rate. Y = yield to maturity . T = time to maturity. Coupon rate will be entered as a decimal. For a bond with a 6 percent coupon rate, you will enter .06 in the formula. Yield will also be entered as a decimal.
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[DOC File]Solutions to Quiz 2 are after the questions
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B) growth rate is greater than or equal to the required return . C) growth rate is less than the required return . D) growth rate is greater than the required return . 46. An increase in a bond's yield to maturity results in a price decline that is _____ the price increase resulting from a decrease in yield of equal magnitude. A) greater than
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[DOC File]Bond Yields and Prices
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Discount rate, or required rate of return by investors. Price = Bond Valuation. Value of a coupon bond: Bond Price = Remember—Most bonds pay semiannual then c must be the semiannual interest payment, YTM must be divided by 2 and n must be multiplied by 2. Biggest problem is determining the discount rate or required yield
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Rate of return formula bond