Question

21) A 13-year, 6 percent coupon bond pays interest semiannually. The bond has a face value 21) of $1,000. What is the peréentage change in the price of this bond if the market yield to maturity rises to 5.7 percent from the current rate of 5.5 percent? A)-1.79 percent C)-1.38 percent B) 1.79 percent D)-1.64 percent 22) This morning,. you borrowed $162,000 to buy a house. The mortgage rate is 4.35 percent. The loan is to be repaid in equal monthly payments over 20 years with the first payment due one month from today. Assume each month is equal to 1/12 of a year and all taxes and insurance premiums are paid separately. How much of the second payment applies to the principal balance? A) $424.57 22) B) $568.84 C) $587.25 D) $585.71 E) $426.11 23) Jensen Shipping currently has an EPS of $2.31, a benchmark PE of 13.5, and an earnings growth rate of 2.3 percent. What is the target share price 4 years from now? A) $38.47 23 B) $27.32 C) $31.15 D) $34.15 E) $29.42 24) KNJ Companies is preparing to pay annual dividends of $1.48, $1.60, and $1.75 a share over the next three years, respectively. After that, the annual dividend will be $1.90 per share indefinitely. What is this stock worth to you per share if you require a return of 14.6 percent? A) $11.22 E) $12.21 B) $11.47 C) $12.32 D) $12.03 25) Today, you are retiring. You have a total of $289,416 in your retirement savings. You want to withdraw $2,500 at the beginning of every month, starting today and expect to earn 4.6 percent, compounded monthly. How long will it be until you run out of money? A) 29.97 years B) 22.03 years C) 8.56 years D) 18.99 years E) 12.71 years

Answer 1

25) No. of months can be calculated using N function on a calculator with BEGIN mode

PMT = 2,500, PV = -289,416, FV = 0, I/Y = 4.6%/12

=> Compute N = 152.52 months = 12.71 years... Hence E is correct.

24) Price in year 3, P3 = D4 / r = 1.9 / 14.6% = $13.01

Price today, P0 = D1 / (1 + r) + D2 / (1 + r)^2 + (D3 + P3) / (1 + r)^3

= 1.48 / 1.146 + 1.60 / 1.146^2 + (1.75 + 13.01) / 1.146^3

= $12.32... Hence, C is correct.

23) EPS in year 4 = EPS today x (1 + r)^n = 2.31 x (1 + 2.3%)^4 = $2.53

Price in year 4, P4 = EPS 4 x P/E = 2.53 x 13.5 = $34.15... Hence, D is correct.

22) Monthly payment can be calculated using PMT function on a calculator

N = 20 x 12 = 240, I/Y = 4.35%/12, PV = 162,000, FV = 0

=> Compute PMT = $1,011.82

First interest payment = 162,000 x 4.35%/12 = 587.25, First Principal Payment = 1011.82 - 587.25 = 424.57

Second interest payment = (162,000 - 424.57) x 4.35%/12 = 585.71, Second Principal Payment = 1,011.82 - 585.71 = $426.11... Hence, E is correct.