Case 2 - Investment Portfolio Instructions: Please type your answers below each question. For full credit, please show all work. All items will be graded for curacy. Each question is worth two points. 10 years Market Con Div Growth Std Price Rate YTM Maturity (D) Rate Beta Dev Notes callable after 3 years at 102% of par; A Bond A 987.50 6% ? rated; semi-annual interest payments noncallable; AA Bond B ? 5% 5.82% 5 years rated; semi-annual interest payments Stock A 20.19 1.00 5% 1.0 23.67 common stock Stock B 24.25 2.00 8.47 preferred stock Stock C 17.83 1.80 3% 1.6 19.12 common stock * Assume a 3-month T-bill rate of 1.5%, an expected annual return of 11% for the S&P 500, and an expected annual return of 6.5% on the Barclays Aggregate Bond Index. 1. 2. 3. 4. 5. 6. To estimate the price of a financial asset, calculate the present value of money. Calculate the yield to maturity for bond A. Calculate the yield to call for bond A if it is called five years from now. Calculate the expected bond price for bond B. Calculate the current yield for bond B. Is bond A trading at a discount or premium? How can you tell? Which bond would you consider more risky? Why? Use the CAPM to calculate the required return for stock A. Calculate the intrinsic value of stock A. (Hint: use the CAPM as the required return.) Based on your calculation in question 9, should you buy the stock? Calculate the intrinsic value of stock B (assume a required return of 8%). 7. 8. 9. 10. 11