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1 . If a G . O Muni Bond with a coupon rate of 5 . 2 % and YTM of 4 . 6 %

1. If a G.O Muni Bond with a coupon rate of 5.2% and YTM of 4.6% has a maturity date of 4/5/35,
what would its price be (assuming semiannual coupons)?(3 points)
a. Why is the price a premium or discount to par? Briefly explain. (3 points)
b. What is unique, in terms of how this bond is secured/collateralized and taxability of
coupons, about this particular bond...relative to a Revenue Bond?(4 points)
2. Understanding how a yield curve is commonly used to forecast the expected change in direction of
interest rates, briefly explain how you might interpret the risk premiums (3 discussed in class) that
are inherent in a steep curve? (7 points)
3. If a Ford Motor 16-year corporate debenture was trading a price of $1048, what would its YTM be if
it has a 5.6% coupon rate (semiannual payment)?(3 points)
Assuming this bond has a Ba credit rating (S&P), how might Ford improve its balance sheet (capital
structure) to potentially reduce its cost of capital? Please explain. (5 points)
4. Calculate todays stock price for CLF if last periods dividend was $1.32 and its dividend growth
forever is expected to be 4.8
% and a required rate of return of 9.6%?(3 Points)
5. Using the above assumptions (Q4), how would you partition CLFs required rate of return...in terms
of its dividend yield and capital gains growth rate? Please show the computation. (3 Points)
6. If CLFs dividend was expected to grow at 21% for the next 3 years, and then return to a constant
growth rate of 4.8% thereafter (post year 3), what would you model its stock price to be (again,
assuming a required rate of return of 9.6% and D0 of $1.32).(10 Points)
7. Period Performance
2020-11%
202115%
20224%
202312%
Q7 Questions:
What is the arithmetic average return over the past 4 years? (2 Points)
What is the standard deviation of this sample of returns? (4 Points)
What distribution of returns would you expect 95% of the time? (3 Points)
8. What is the expected return & standard deviation of a portfolio allocated 58% in Asset A and 42% in
Asset B?(10 Points)
Econ Prob A Performance B Performance
Great 20%20%15%
Normal 50%10%8%
Poor 30%-5%2%
9. Inputs for WACC (Re computed using CAPM only)
LT Debt: 11,000 bonds outstanding of a 5-year maturity; 1050= PV; 5.2%= Coupon Rate
(Semiannual)
Common Stock: 52,000 shares outstanding; $32 price today
Preferred Stock: 14,000 shares, 4.6% dividend yield ($100 part), $96 share price
Other CAPM Information:
ERm =9%
Rf =3.00%
Beta =1.18
Tax Rate =21%
Q9 Question: What is the WACC (please show inputs on Excel)?(10 Points)

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