Question

17) The collar of a floating-rate hond refers to the minimum and max A) call periods B) maturity dates C) yields to maturity D) upon rates E) market prices 18) 189 You would like to provide $125.000 a war forever for your heirs. How much money must you deposit today to find this goal if you can cam a guaranteed 4.5 percent rate of 19) retur? A) $2,521,212 B) $2,858,122 C) $2,777,778 D) $2,850,000 E) $2.666,667 19) The interest rate that is most commonly quoted by a lender is referred to as the A) common rate. B) simple rate. C) annual percentage rate. D) compound rate. E) effective annual rate. 20) 20) HCC, Inc., expects its dividends to grow at 25 percent per year for the next seven years before levelling off to a constant 3 percent growth rate. The required return is 11 percent. What is the current stock price if the annual dividend per share that was just paid was $1.05? B) $38.93 C) $39.96 D ) $32.11 E) $44.36 21) 21) Today, you have two coins each of which is valued at $100. One coin is expected to appreciate by 5.2 percent annually while the other coin should appreciate by 5.7 percent annually. What will be the difference in the value of the two coins 50 years from now? A) 5337.43 B ) $318.04 C) $191.79 D) $380.15 E) $128.32 22) 22) A newly issued 10-year, $1,000, zero coupon bond just sold for $311.05. What is the implicit interest, in dollars, for the first year of the bond's life? Assume semiannual compounding, A) 841.47 B) $45.89 C) $57.63 D) $47.72 E) $38.53

Answer 1

Q - 17 ) ............ Select - (D) ........Coupon rates

Q - 18) .............Select - (C) ..........2,777,778

Value of a perpetuity = Perpetual Income / Interest rate

= 125,000 / 0.045

= 2,777,778

Q - 19 ) ..........Select - (C) ...........Annual percentage rate

Q - 20) ...........Select - (A) ...........43.21

Year	1	2	3	4	5	6	7	7
Dividend	1.3125	1.640625	2.050781	2.563477	3.204346	4.005432	5.00679	64.46242
DF	0.900901	0.811622	0.731191	0.658731	0.593451	0.534641	0.481658	0.481658
PV	1.182432	1.331568	1.499514	1.688641	1.901623	2.141468	2.411563	31.04887	43.21

Dividends are computed by multiplying previous dividend with 1.25

DF = Discounting factors

PV = Dividend * PV

In the seventh year apart from dividend we will be having horizon value of share with constant growth of 3%.

That is calculated as ...... 5.00769 * (1.03 ) / ( 0.11 - 0.03 ) = 64.4642

For this reason ............. year - 7 is repeated twice in the table.

Total of PV = 43.21 is the current stock price.

Question - 21.............Select - (A) ......... 337.43

100 * ( 1.057)⁵⁰ - 100 * (1.052)⁵⁰

= 1598.63 - 1261.21

= 337.42

Question - 21 ..........Select - (D)

n = 10 * 2 = 20

r = semi annual rate

311.05 * ( 1 + r )ⁿ = 1000

( 1 + r )²⁰ = 1000 / 311.05 = 3.21491722

1 + r = 20th Root ( 3.21491722 )

1 + r = 1.0601

r = 0.0601 .......... or 6.01 %

Implicit Interest for ......... Year - 1 = 1000 / (1.0601 )¹⁸ - 311.05 = 349.58 - 311.05 = 38.53