Question 1

Renfro Rentals has issued bonds that have a 9% coupon rate, payable semiannually. The bonds mature in 8 years, have a face value of $1,000, and a yield to maturity of 7%. What is the price of the bonds?

Question 2

Thatcher Corporation's bonds will mature in 12 years. The bonds have a face value of $1,000 and a 7% coupon rate, paid semiannually. The price of the bonds is $1,100. The bonds are callable in 6 years at a call price of $1,060. What is their yield to maturity? What is their yield to call?

Question 3

The real risk-free rate of interest is 3%. Inflation is expected to be 2% this year and 3% during the next 2 years. Assume that the maturity risk premium is zero. What is the yield on 2-year Treasury securities?

Question 4

As an equity analyst you are concerned with what will happen to the required return to Universal Toddler' stock as market conditions change. Suppose r_RF = 3%, r_M = 13%, and b_UT = 1.9.

a. Under current conditions, what is r_UT, the required rate of return on UT Stock? Round your answer to two decimal places.

b. Now suppose r_RF (1) increases to 4% or (2) decreases to 2%. The slope of the SML remains constant. How would this affect r_M and r_UT?

c. Now assume r_RF remains at 3% but r_M (1) increases to 15% or (2) falls to 12%. The slope of the SML does not remain constant. How would these changes affect r_UT?

Question 5

Suppose you manage a $4.655 million fund that consists of four stocks with the following investments:

Stock	Investment		Beta
A	$460,000		1.50
B	425,000		-0.50
C	1,420,000		1.25
D	2,350,000		0.75

If the market's required rate of return is 11% and the risk-free rate is 7%, what is the fund's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places.