Answer the following Exercises and provide solution

Exercise No. Mod 5-1

Assume that an analyst needs to value a 4-year, 5% annual coupon payment bond, Bond-K, which is not actively traded. The analyst could find some other bonds, however, with a comparable credit quality:

Bond-L: 3-year, 5.5% annual coupon payment bond at a price of 108; and

Bond-M: 5-year, 4.5% annual coupon payment bond at a price of 105.

All bonds come with a face value of P100.

Requirement:

1.Find the YTM (Yield to Maturity) of bonds L, M and K.

2.How much is the estimated price of the illiquid bond K per P100 of each par value.

ABC's stock is currently selling for Php 160.00 per share and the firm's dividends are expected to grow at 15% indefinitely. Assuming ABC's must recent dividend was 5.50, what is the required return on ABC's stock?

a.18.95 b. 8.60 c. 15.50 d. 21.35

A 1,000 par value bond with a 12% coupon rate currently selling for P825 has a current yield of:

a.7.27% b. 12% c. 14.55% d. 13.45%

A firm has an issue price of P1,000 par value bonds with a 15% stated interest rate outstanding. The issue pays interest annually and has 13 years remaining to its maturity date. If bonds of similar risk are currently earning 11%, how much will each bond sell today?

a.1,265.20 b. 1,369.99 c. 1,234.20 d. 1,270.00

Assuming the same facts above, how much will the bond sell two years from today?

a.1,259.72 b. 1,248.28 c. 1,235.60 d. 1,221.51

If a firm's EPS is P5.00 and the firm is paying a dividend of P1.25 per share, what is the firm's payout ratio?

a.33% b. 6% c. 15% d. 25%

Company XYZ has a beta of 1.54. The expected risk-free rate of interest is 1.5% and the expected return on the market as a whole is 10%. Using the CAPM, what is XYZ's expected return?

a.13.75% b. 14.59% c. 13.83% d. 14.05%

Trinilla Corp expects rapid growth in its operations. To finance its investment needs, Trinilla issued 1,000 10%, P1,000 face value 5-year bonds dated October 1, 2019 paying interest semi-annually every April 1 and October 1. Bonds of similar risk currently yield 12% interest. What amount of interest payable shall be reported in Trinilla's December 31, 2019 Statement of Financial Position?

a.50,000 b. 25,000 c. 55,918.40 d. 27,959.20

Using the above data, what is the amount of interest income to be reported in Trinilla's 2019 Income Statement?

a.100,000 b. 50,000 c. 25,000 d. no answer

Using the above data, what is the carrying amount of the bond to be reported in the Dec 31, 2019 Balance Sheet?

a.1,000,000 b. 29,181.70 c. 941,028.56 d. 931,973.40

R. Isidro has a P1,000,000 portfolio containing the assets K, O, N, and H. P250,000 is invested in Asset K with a beta of 3.0, P150,000 in Asset O with a beta of .5, P350,000 in Asset N with a beta of 4.0 and the remainder in Asset H with a beta of 1. If the risk-free rate is 2.5% and the market premium is 8%, what is the portfolio rate of the return?

a.1.45 b. 0.50 c. 2.23 d. 3.0

R. Sandagon has a 100,000 savings in the bank. He faced with two investment opportunities, to invest in Treasury bond and to invest in Asset Scroll with a return equal to market. Assuming R. Sandagon invested 50% in the Treasury bond and the remainder in Asset Scroll, what is the beta of R. Sandagon's portfolio?

a.0.5 b. 1.0 c. 1.5 d.2.0

Combining Asset A and B with betas of 1.5 and 3 will most likely produce a portfolio with a beta of:

a.1.0 b. 2.0 c. 3.5 d. all of the above

What is the market rate of return if the rate of return for an asset with a beta of 3 is 20% assuming a risk-free rate of 5%?

a.5% b. 10% c. 15% d. 20%

Alegarbes Investments has the following investments:

Asset (stocks) A B

Number of share 1,000 2,000

Price per share 150 75

Beta 2 1.5

What is the beta of the portfolio?

a.1.5 b. 1.63 c. 1.75 d. 1.88