QUESTIONS

Red Frog Brewery has $$1,000-$par$-$value bonds outstanding with the following characteristics: currently selling at par; $8$ years until final maturity; and a $12$ percent coupon rate $($with interest paid quarterly$).$ Interestingly, Old Chicago Brewery has a very similar bond issue outstanding. In fact, every bond feature is the same as for the Red Frog bonds, except that Old Chicago's bonds mature in exactly $12$ years. Now, assume that the market's annual required rate of return for both bond issues is $6$ percent. Compute the per bond price for each brewery's bonds. $(35$p$)$

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An investor will establish a Portfolio$-$ABC with Stock A$,$ Stock B and Stock C$.$ The main information for the investment plan are given below. If the standard deviation for the Stock $A$ is $0\mathrm{.}18,$ compute the risk of the portfolio. $(30$p$)$

$\backslash$table$[[$Stocks$,$Covariance Coefficient,Invested Amount,Correlation Coefficient$],[$Stock A$,$A and B: $0\mathrm{.}0163,$$$50\mathrm{.}000,$A and B: $0\mathrm{.}20],[,],[$Stock B$,$A and C: $0\mathrm{.}0144,$$$70\mathrm{.}000,$A and C: $0\mathrm{.}45],[,,$$$80\mathrm{.}000,0\mathrm{.}60],[$Stock C$,,,]]$

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$3.$ An investor will invest its fund to high potential project. The duration of the project will last $12$ years and the investor expect to receive $$4$ million from the project in its first year and the growth rate of this amount is $6\%$ per year for the next $12$ years. When the duration is finished, the investor will also continue to operate this project and receive the same amount. The required rate of return for the investor is $5\%$ per year. Compute the present value of the new project. $(35$p$)$

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