I have HW in Finance

and I need help

true/false and calc question as short answers

1. A floating rate bond has lower duration than a fixed rate bond. 2. An investor takes on essentially no risk if she invests in a bond with a AAArating. 3. If a bond's yield is exactly its coupon, it must be selling at its par value. 4. An annuity for 10 years at 5% is worth twice as much as an annuity for 5 years at 5%. 5. Miramax has an asset-backed bond based on revenues from a slate of 9 Spanish language films. If the revenues from these films are not enough to meet the bond obligations, Miramax would be responsible for any shortfall. 6. If interest rates fall by 1%, the price of a 10-year zero coupon bond will increase by about twice as much as a 5-year zero coupon bond. 7. The Nikkei 225 index gained 56.7% in 2013. This means that if you held the Nikkei for all of 2013 your rate of return was 56.7%. 8. If the price of Chevron's stock rose by 5% today we would expect that the price of Chevron's bonds would also rise. 9. Over the past 5 years, in the U.S., an index of small stocks has out-performed an index of large stocks. 10. Assume Aulet Inc. has issued a preferred stock with a $6 annual dividend. What is its price if the next dividend comes in exactly 8 months; the preferred is currently callable at $50 and the relevant interest rate is 9%? 1 11. Assume Evans Inc. has issued a 5% 10 year bond with a yield of 6%. Its par value is $1000. Assuming annual coupons with the first coupon in exactly one year, what is the current yield on this bond? 12. Assume Evans Inc. has issued a 5% 10 year bond with a yield of 6%. Its par value is $1000. Assuming annual coupons with the first coupon in exactly 4 years, what is the price of this bond? Assume you have a $400,000 mortgage with annual payments and an original maturity of 30 years at a rate of 8%. 13. After you have made 15 payments, what is the outstanding mortgage balance? 14. After you have made 15 payments, the new interest rate is 4%. What is the PV of refinancing assuming the refinancing incurs a fee of $15,000 (and we make all the remaining 15 payments)? Since November of 2015 Lions Gate Entertainment's stock price has fallen from $41 to $16. Determine whether each of the following three possible explanations for this decline are valid or invalid. Include a brief explanation of your answer. 15.Bad news about the box office from the last Hunger Games movie. 16.Announcement of a secondary stock offering 2 17.Overall decline in the US stock market. 3 18. Assume (naturally enough) that you won the $1 billion award Buffett gave you for correctly predicting the outcome of each match in the 2014 NCAA tournament. The award was in 40 annual installments of $25 million (beginning immediately) or a lump sum of $500 million payable immediately. (Ignore taxes and assume that you will live at least 40 more years because of your high exercise, low-carb life style.) Which alternative would you take? Why? (Numbers 19 to 23) In each of the following 5 rectangles put in the expected direction of that market or asset (if you know it). Assume we have a 10-year zero coupon with a par value of $1,000 and a yield of 8%. 24.What is this bond's price? 25.Based on duration, what is the estimated bond price if its yield falls to 7%? 4 26.Determine the new price exactly if its yield falls to 7%? 5 800 600 400 NPV 200 Bond A 0 0.0 0.01 0.02 0.03 Bond B 0.04 0.05 0.06 0.07 0.08 0.09 0.1 0.11 -200 -400 r The diagram shows the NPV of 2 (non-convertible) zero coupon bonds (par value $1000) as a function of the discount rate (r). 27. Which bond has the longer maturity? Why? 28. Which bond has the higher rate of return? Why? 29. Estimate the IRR of Bond B from the graph. 30. Is it likely that Bond A has a AAA rating? Why or why not? 6