School

Arizona State University **We aren't endorsed by this school

Course

FIN 302

Subject

Finance

Date

Nov 20, 2023

Type

Other

Pages

6

Uploaded by CorporalLobsterMaster943 on coursehero.com

12acbf867ee728420f1d8f758dd503cc1cf8da4d.xlsx
Problem 1
N
7
coupon
9%
Price0
$1,240.00
1 yr later:
YTM
7%
PVFA
4.76653965976411
Price1
$1,095.33
cap gain
-11.67% This is the Percent Change in price
cy
7.26%
Total return
-4.41% 1-year return = coupon pmt+price1/Price0-1
Problem 2
Nonconstant growth
0
$1.8000
1
$2.0700
15%
1
$2.0700
$1.82
2
$2.3805
15%
2
$2.3805
$1.83
3
$2.7376
15%
3
$2.7376
$1.85
4
$3.0113
10%
4
$34.3292
$20.33
5
$3.1318
4% constant
$25.82
Terminal
p4
$31.32
r
14%
P0
$25.8209
P1
$27.37
Problem 3
Cap Gains rate= G
DY
6.50% . = D1/ P0
Div Yield = D1/P0
r
15%
r = Div Yield + Cap Gains rate
P3
$85.00
P1=P0 * (1+g)
g
8.50%
P2=P1 * (1+g)
P2
$78.3410
P1
$72.2037
P0
$66.5472
Problem 4
TIPS
coupon
5%
Year
PMT
infl1
6%
1
$50.0000
infl2
3%
2
$1,050.0000
PMT in Y2
$1,146.39
Problem 5
N
10
coupon
9%
YTM
7%
PVFA
7.02
Price 0
$1,140.4716
If YTM is:
8%
9%
11%
PVFA =
6.25
5.53
4.71
Price 1
$1,062.4689
$1,000.0000
$905.7561
return
1.05%
-4.43%
-12.69%
Problem 6
D1
1.2
D1
1.2
DY
6%
Div Yield = D1/P0
P0
$20.0000
Problem 7
Problem 1
. 1 year ago you purchased a 7 year, 9% coupon bond for $1,240.
Today, you sell the bond when the YTM is 7%.
(a) What is your percent capital gain on this investment?
(b) What is the current yield on the bond when you purchase it?
(c) What is your total return on the investment over the year?
BDS Corp. just paid a dividend of $1.80 per share. You expect dividends to grow 15% per year
for the next 3 years, 10% per year the year after that, and then grow at 4% per forever.
(a) If the required return on this stock is 14%, what is the price today?
(b) What is the expected price next year?
You estimate that the growth rate in dividends for a company will be constant for
the foreseeable future. How much should you pay for a share of the stock TODAY if
the dividend yield is 6.50%, the required return is 15%, and you think the stock will
sell for $85 three years from now?
Suppose you purchase a 2 year TIPS bond with a coupon rate of 5%
and a Par value of $1,000. If inflation in the first year is 6% and
inflation in the second year is 3%, how much will the bond pay you in
the second year?
Suppose you buy an 10 year, 9% coupon bond when the YTM is 7%. What is your rate of
return if you sell the bond next year when the YTM is: (a) 8% (b) 9% (c) 11%?
Consider the following stock investment: A stock is expected to pay a
dividend of $1.20 next year, and its dividend yield is 6%. What is the
price of the stock?
The growth rate in the dividend payments of a manufacturing company is constant at -4%
per year (The dividends are getting smaller). The stock just paid a dividend of $4.50 per
share. Investors require a return of 18% to invest in the company.
(a) What is the price of a share of the stock today?
(b) What is the expected price next year?
(c) What is your rate of return for a 1 year investment in this stock?

12acbf867ee728420f1d8f758dd503cc1cf8da4d.xlsx
g
-4% g is the growth in dividends AND the capital gains rate because it is CONSTANT
D0
4.5
r
18%
P0
$19.6364 P0 = D1/(r-g)
P1
$18.8509
r
18.00% one year return = (div+sale)/pruchase-1
Problem 8.
Year
Cash Flows
PV
1
$1.2000
1
$1.2000
$1.05
2
$1.4000
2
$1.4000
$1.08
3
$1.4500
3
$1.4500
$0.98
4
$2.1000
4
$2.1000
$1.24
5
$3.6000
$63.5000
5
$67.1000
$34.85
$39.20
r
14%
P0
$39.20
P1
$43.49
I expect a 14% return
Problem 9
P0
50
D1
2
P1
45
DY
4.00%
CG
-10.00%
total ret
-6.00%
Problem 10
Buy it today, everyone thinks g = 5%
D1
3.2
One year goes by, I collect $3.20 D1 announce good news
g
5%
g is now 7%
r
12%
P0
$45.7143
after 1 year, g =
7%
P = next D/(r-g)
Expected D2
$3.4240
P1
$68.48
1-yr return
56.80%
Problem 11
This is a 1 Day investment (So no Coupon is Paid)
N
12
coupon
9%
YTM0
6%
YTM1
7%
PVFA0
8.38384394038333
Price0
$1,251.5153
PVFA1
7.94268629656092
Price1
$1,158.8537
1-day return
-7.40%
Problem 12
Annual
Semi Annual
N
10
20
coupon
9%
4.5%
YTM
12%
6.0%
semi-annual payments
PVFA
5.65022302841087 11.469921219
Price
$827.9512
You expect a stock to pay dividends of $1.20, $1.40, $1.45, $2.10 and $3.60 over the next 5
years. You will receive the first dividend exactly 1 year from now. You expect the stock to sell
for a price of $63.50 five years from now.
(a) If the required return is
14%
, what is the price of the stock today?
(b) What is the expected price next year?
You buy a share of ABC Inc today for $50. One year later, the stock pays a
dividend of $2/share and you sell the share for $45.
(a) What was your dividend yield?
(b) What was your capital gain yield?
(c) What was your total return on this investment?
ABC stock is expected to pay a dividend of $3.20 per share 1 year from now. Investors expect
dividends to grow 5% per year forever, and the required return on this stock is 12%.
(a)What is the price of the stock today?
(b) Suppose that after one year the stock pays the expected dividend, but investors now expect
a growth rate of 7% per year forever from this stock. How much could you sell the stock for
immediately after the new growth rate is known?
(c) What is your rate of return on a one-year investment in this stock?
In the morning, you purchase a 12-year, 9% coupon bond at a YTM of 6%. Later in the
day, you sell the bond at a YTM of 7%.
What is your 1-day rate of return on this investment?
What is the price of a 10-year, 9% coupon bond that makes
semi-annual coupon payments? The YTM is 12%.

12acbf867ee728420f1d8f758dd503cc1cf8da4d.xlsx
Problem 1
N
7
coupon
9%
Price0
$1,240.00
1 yr later:
YTM
7%
PVFA
4.76653965976411
Price1
$1,095.33
cap gain
-11.67%
cy
7.26%
Total return
-4.41%
-4.41%
Problem 2
0
$1.8000
15%
1
$2.0700
15%
2
$2.3805
15%
3
$2.7376
10%
4
$3.0113
4%
P4
$31.3179
5
$3.1318
r
14%
P0
$25.8209
P1
$27.37
Problem 3
DY
6.50%
r
15%
P3
$85.00
g
8.500%
P2
$78.3410
P1
$72.2037
P0
$66.5472
Problem 4
TIPS
coupon
5%
Year
PMT
infl1
6%
1
$53.0000
infl2
3%
2
$1,146.3900
Problem 5
N
10
coupon
9%
YTM
7%
PVFA
7.02
Price 0
$1,140.4716
If YTM is:
8%
9%
11%
PVFA =
6.24688791085676 5.9952468943 5.53704753
Price 1
$1,062.4689
$1,000.0000
$889.2590
return
1.05%
-4.43%
-14.14%
Problem 6
D1
1.2
DY
6%
P0
$20.0000