1. We have a bond that pays $90 annually and has a maturity of 15 years. If the current price is $1200, what is its yield to maturity? If it is callable in 4 years at $1090, what is the yield to call?
2. We have a callable preferred stock after 5 years at $104 that pays $4 annual dividend. If the yields for this type of instruments are 6%, What price do they fetch in the market?
3. We buy a 8% coupon bond now, when market rates are 10%, and intend to sell it in 3 years when market rates are 6%. What should we pay now?
4. We know the following about Radice. Total assets are $120m, D is $40m, E is $60m, preferred stock of $20m, cash is $10m and the # of shares is 1m. We estimate that the market value of equity is 3 times the book value of it. Finally, a fire sale of the firm would bring 40% of the value to the company. Compute the book value, liquidation value, replacement value and enterprise value per share of Radice.
5. We buy a put option of Stefanic and associates. Its premium is $1 and the strike price is $34. The current market price is $40. If the price drops to $20, shall we exercise the put option? If not, why not, and If yes, why yes? Compare the two cases of owning the stock versus not owning it in terms of rate of return the investor makes. Assume that we bought it for $30.B.
Discuss the priorities of claims of investors, in case of both a going concern and a chapter 11 bankruptcy..
2. Explicate risk. Distinguish between systematic and unsystematic risk. Define beta. What are the values of sign and size for bheta?
3. Talk about the determinants of the ROE. Is ROE a good indicator of return. WHY yes or no?
4. Elaborate on a) 2 different methods of underwriting financial assets b) Describe the functions of an underwriter
5. Elucidate the 4 different steps of portfolio management.
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