Discuss the relationship between bond value and required rate of return. You can use examples to substantiate your answer. 

 

Question 2:Investors should be more concerned about the diversifiable risk rather than non-diversifiable risk in their portfolios. Do you agree with this statement? 

Question 3.

(a) TVN company's common stock has paid a dividend of $5.00 per share per year

for the last 10 years. The CEO of the company expects to continue to pay at that amount for

the foreseeable future. The current required rate of return for the TVN stock is 12%. How much should an investor pay for one common share of TVN?

 

(b) ABC, Inc., common stock paid a dividend of $5.20 per share last year. The company expects earnings and dividends to grow at a rate of 5% per year for the foreseeable future. What is the maximum price per share that an investor who requires a return of 12% should pay for ABC's common stock?

 

Question 4: Use the basic equation for the capital asset pricing model (CAPM) to find the required return for an asset with a beta of 1.20 when the risk-free rate and market return are 8% and 12%, respectively.

 

Question 5

 

You have data on the following assets:

  asset

 Expected return

 Standard Deviation

   A

 11.0%

 21.0%

   B

 11.5%

 20.2%

   C

 13.0%

 25.0%

  

 

       Calculate the coefficient of variation for each of the assets. Which asset is the best investment option?

 

 

Question 6: Benson Designs has prepared the following estimates for a long-term project it is considering. The initial investment is $16,250, and the project is expected to yield after-tax cash inflows of $6,000 per year for 4 years. The firm has a 10% cost of capital.

 

(a) Calculate the net present value (NPV) of the project. 

(b) Determine whether the internal rate of return (IRR) for the project is GREATER than 14%. Show necessary calculations.

(c) Would you recommend that the firm accept the project based on the NPV? 

(d) Determine the payback period for the project.

 

Question 7: ABX Company has an outstanding issue of $10,000-par value bonds with an 8% coupon interest rate. The bond has 6 years remaining to its maturity date. How much should the bond sell for today if coupons are received/paid ANNUALLY assuming an opportunity cost of 10%?