Please help with my Finance homework, I am really lost
Fall 201 Homework Assignment III BUS 230 Principles of Finance (1.5 points each | Total 24 points) Due on October 31, 2017 I. You read in The Wall Street Journal that 30-day T-bills (risk-free security) currently are yielding 8 percent. Your brother-in-law, a broker at Kyoto Securities, has given you the following estimates of current interest rate premiums for BBB rated bonds: 1% 2% 2% Liquidity premium Maturity risk premium Based on these data, the rate of return on BBB rated bond is (Hint: use the rate of return formula in Chapter 6) a. 10% Default risk premium 12% 13% b. 11% When the return on short-term securities are higher than return on long-term securities of similar risk, a. the economy is said to have normal yield curve b. the economy is said to have inverted yield curve c. the economy is said to have flat yield curve d, the shape of the yield curve cannot be determined 2. 3. Keeping everything else the same, which of the following statements is True regarding loanable fund theory? a. Increase in wealth of people in the economy causes the supply curve to shift to the right making the interest rate go up. Increase in wealth of people in the economy causes the supply curve to shift to the left making the interest rate go up. b. Bett er economic condition causes the demand curve to shift to the left making the interest rate to go up. c. d. Better economic condition causes the demand curve to shift to the right making the interest rate go up. 4. According to the loanable fund theory of interest rates, which of the following statement(s) is(are) True? a. Increase in interest rate leads to an increase in supply of loanable funds making a movement up along the supply curve (more supply). demand curve (lower demand) the demand curve (more demand). Increase in interest rate leads to a decrease in demand of lonable funds making a movement up along the c. Decrease in interest rate leads to an increase in demand of loanable funds making a movement down al d. All of the above statements are true 5. Your broker offers you the opportunity to purchase a bond with coupon payments of S$50 per year and a face A) B) If the yield to maturity on similar bonds is 6%, this bond should: Sell at a premium Sell at a discount C) D) Sell for par value Cannot be determined 6. Suppose you observe the following situation. If the risk free rate is 290, what are the reward-to-risk ratios for Cooley and Moyer's securities? Security Brady Inc. Miko Co Beta 0.8 1.2 Expected Return 10% 14% A) 10.0, 10.0 B) 7.5, 10.0 C) 7.5, 11.67 D) 10.0, 11.67 Over the last 4 years you earned 7%, 5%, 8% and 9%. Your average return is is 7. and its standard deviation A) B) 5%, 4.11% 7.25%, 6.03% C) D) 7.25%, 1.71% 7.25%, 2.61% 1F
