FIN 3100 Study Guide - Quiz Guide: Merck & Co., Profit Margin, Expected Return

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sapphirebat199

3 Feb 2018

School

WMU

Department

Finance & Com Law - Finance

Course

FIN 3100

Professor

Mangla

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Document Summary

Capital to be raised today = million. Number of bonds to be issued is 1 million. Let each par value (m) be $ 100 for the bond. Future value after 20 years = 340*[(cid:4666)(cid:2869)+(cid:2868). (cid:2868)(cid:2871)(cid:2870)5(cid:4667)(cid:3120)(cid:3116) (cid:2869) Bond price= /(cid:2870)(cid:4666)(cid:2869)+(cid:4667)+ /(cid:2870) (cid:4666)(cid:2869)+(cid:4667)(cid:3118)+ /(cid:2870) (cid:4666)(cid:2869)+(cid:4667)(cid:3119)+ . + /(cid:2870) (cid:4666)(cid:2869)+(cid:4667)+ (cid:4666)(cid:2869)+(cid:4667) Bond price= (cid:4666)/(cid:884)(cid:4667) [(cid:2869) [ (cid:3117)(cid:4666)(cid:3117)+(cid:4667)]] (cid:4666)(cid:2869). (cid:2868)(cid:2871)(cid:2870)5(cid:4667)(cid:3120)(cid:3116)=(cid:4666)/(cid:884)(cid:4667) [(cid:2869) [ (cid:4666)(cid:3117). (cid:3116)(cid:3119)(cid:3118)(cid:3121)(cid:4667)(cid:3120)(cid:3116)]] (cid:3117) 340=(cid:4666)/(cid:884)(cid:4667) [(cid:2869) [ (cid:4666)(cid:3117). (cid:3116)(cid:3119)(cid:3118)(cid:3121)(cid:4667)(cid:3120)(cid:3116)]] (cid:3117) (cid:2869)(cid:2868)(cid:2868) (cid:2868). (cid:2868)(cid:2871)(cid:2870)5 (cid:2868). (cid:2868)(cid:2871)(cid:2870)5. Standard deviation of company b ( b)= = 16. 5% Portfolio is of 60% company a stocks and 40% company b stocks. Beta of the portfolio is close to 2. Hence the portfolio is twice as risky as the market. Ao = current level of assets= million. S/so = percentage increase in sales i. e. change in sales divided by current sales= (18-20)/20= -0. 1. Lo = current level of liabilities=(current liabilities is to shrink with sales) . 25 million. S1 = new level of sales= million.

Related Questions

You plan to buy a car 3 years from now and plan to take out a 3-year car loan. Given the following yield curve and assume that the spot rates are continuous compounded, what will be the interest rate for your car loan?

Yrs to Maturity	1	2	3	4	5	6	7
% yield	4	5	6	7	8	9	10

2. Given the following treasury bonds, calculate the 18-month zero rate. Assume face value of each bond is 100 and coupons are paid semi-annually.

Bond	Yrs to Maturity	Annual coupon rate%	Bond price
A	0.5	0	98
B	1	8	98
C	1.5	9	104

Action Items:

Go to the http://www.federalreserve.gov/releases/h15/data.htm to examine historical daily interest rates on U.S. Treasuries.

Scroll down to "Treasury constant maturities" and in the row "1-month" under "Nominal" click "Business day."

As you can see, rates on the one-month U.S. Treasury bill are provided for each business day from July 31, 2001 to the present. For this assignment you are asked to pick a business date five years ago this month. (For example, in January 2012 I would pick a business date in January 2007.)

Then, using this row and the subsequent rows below it under âTreasury Constant Maturitiesâ determine the shape of the yield curve (See Figure 6.11in the textbook for examples of Treasury yield curves) on that date five years ago based on the rates published by the Fed by completing the table below for the listed Treasury maturities (see example below):

Business Date Chosen Five Years Ago	7/15/2010
1-month Nominal T-bill Rate on that Date	0.16
3-month Nominal T-bill Rate on that Date	0.15
6-month Nominal T-bill Rate on that Date	0.2
1-year Nominal T-note Rate on that Date	0.27
5-year Nominal T-note Rate on that Date	1.76
10-year Nominal T-note Rate on that Date	3
20-year Nominal T-bond Rate on that Date	3.77
30-year Nominal T-bond Rate on that Date	3.97

Answer the following questions:

On your selected date was the yield curve rising, falling, or flat? What explanation(s) would you give for this shape?

From my selected date, the yield curve is rising. This is due to the fact that the longer money is invested the more youâre compensated and earn due to the fact that the interest rates being higher.

Assume that two U.S. Treasury securities were purchased at par ($1000) on your selected date five years ago: 1) a 10-year T-note and 2) a 20-year T-bond. Also assume that for each of the two securities the reported nominal rate that you found above was the coupon rate at issuance.

Assuming semi-annual coupon payments, calculate the value of each bond today after 5 years based on the current 5-year Treasury constant maturity nominal rate for the original 10-year note and a current 15-year rate (assume it is the average of the current Treasury constant maturity nominal 10- and 20-year rates) for the original 20-year bond at http://www.federalreserve.gov/releases/h15/data.htm.

Complete the following tables (see example below):

10-Year Bond Purchased for $1000 5 Years Ago

Original Value	$1000
Coupon Rate (From table you completed above at the chosen date from 5 years ago, the original 10-year Nominal T-bond Rate divided by 2 for semi-annual payments)
Current 5-Year Yield to Maturity (The most recent 5-year Nominal T-note Rate reported at the Fed site divided by 2 for semi-annual payments)
Number of Semi-Annual Periods Remaining
Current Value*
Gain or Loss on the Bond over the 5 years

20-Year Bond Purchased for $1000 5 Years Ago

Original Value	$1000
Coupon Rate (From table you completed above at the chosen date from 5 years ago, the original 20-year Nominal T-bond Rate divided by 2 for semi-annual payments)
Current 15-Year Yield to Maturity (Take the average of the most recent 10- and 20-year Nominal T-bond Rates reported at the Fed site, and then divide this average rate by 2 for semi-annual payments)
Number of Semi-Annual Periods Remaining	30
Current Value*
Gain or Loss on the Bond over the 5 years

*Current Value = PV_Bond = Coupon Payment +

b) Did you gain or lose more on one bond relative to the other? Explain.

pinkmink286

Please can someone help me with this :

Minicase 1

Interest Rates, Bond Yields, and Duration

CONCEPTS IN THIS CASE

simple loans
fixed-payment loans
coupon bonds
present value
yield-to-maturity
current yield
nominal and real interest rates
rate of return
capital gain
interest-rate and reinvestment risk
duration

You have been hired to analyze the debt securities of your organization. The firm has outstanding loans and bonds. A quick review of the balance sheet shows the following:

	Liability Amount ($)	Nominal Interest (coupon) Rate	Years to Maturity
Selected Liabilities of the firm
Simple Loans	800	5%	1
Fixed-Payment Loans	5,000	12%	19
Long-term Bonds #1	500,000	10%	4
Long-term Bonds #2	1,080,000	10%	10
Liabilities Total	1,585,800

Market Price for Bond #1	930.50
Market Price for Bond #2	859.50
Face Value of Each Bond	1,000.00
Selected Current Assets of the firm
Marketable Securities:
Treasury Bills	100,000

Note: Treasury Bills have a $10,000 face value, which matures in one year. Each Treasury Bill has a cost of $9,580.00

How much interest would the firm pay each year on the simple-interest loan?

How much would you write a cheque for to pay off the loan in one year?

What is the monthly payment needed to pay off the fixed-payment loans?

What is the current yield for each bond if the current price is:

$930.50 for Bond #1?

$859.50 for Bond #2?

What is the expected yield to maturity for each bond?

Bond #1 selling for $930.50?

Bond #2 selling for $859.50

What is the rate of capital gain if both bonds sell for $900.00 in one year?

Bond #1 selling for $930.50 today?

Bond #2 selling for $859.50 today?

If the Yield to Maturity expected by investors changes to 11%:

What will be the market price of Bond #1?

What will be the market price for Bond #2?

What will be the dollar change in price for Bond #1?

What will be the dollar change in price for Bond #2?

What will be the percent change in price for Bond #1?

What will be the percent change in price for Bond #2?

Since the change in expected yield to maturity is the same, why is the amount of change different between the bonds?

If investors holding our 4-year bonds (Bond #1) receive interest income annually for four years, plus the face value of the bonds at maturity,

What will be the total interest earned on the bond over the next four years?

What will be the face value received at maturity?

Given the following projected income stream for Bond #1:

			Projected Reinvestment Rates
Year	Coupon Interest ($)	Face Value ($)	10%	5%
1	100
2	100		10.00	5.00
3	100		21.00	10.25
4	100	1000	33.10	15.76
Total Income	400	1000	64.10	31.01

What is the total cash available over the next four years to the bond holder earning

10%

15%

What is the average annual rate of return for the bond holder earning

10%

15%

Why does the reinvestment rate affect the annual rate of return for the same bond?

If the expected rate of return on our bonds is 10%, what is the duration of Bond #1?

What is the yield to maturity on the Treasury Bills (a discount bond)?

What is the real rate of interest if the nominal rate is 10% and the inflation rate is 3%?

amethystcrow453

FIN 3100 Study Guide - Quiz Guide: Merck & Co., Profit Margin, Expected Return

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