10%
2 a PeterCo Bonds % YTM, maturity=10Years S&P Rating Order from most secure (1) to least (5) Mark with “x” the Junk Bonds
A 3,1 BBB
B 2,3 A
C 4,6 BB
D 17.9 CC
E 12,3 CCC
10
b
10
20%
3
a)
10
b)
10
20%
4 Better Portfolio Why? Justify using financial arguments and formulas
a-Based on Return
5
b-Based on Risk
5
Based on Risk and Return
10
20%
5
a)
10
b)
5
15%
6
15%
Problem 1: (Excel is not required)
Explain the different between Expected Rate of Return and free risk rate (10 points)
Problem 2: (Excel is not required)
PeterCo has the following Government Bonds:
a-Complete the following table (Excel is not required, 10 points)
PeterCo Bonds % YTM, maturity=10Years S&P Rating Order from most secure (1) to least (5) Mark with “x” the Junk Bonds
A 3,1 BBB
B 2,3 A
C 4,6 BB
D 17.9 CC
E 12,3 CCC
b) Explain this: “As interest rates increase (decrease), the value of the bond decreases (increases)”, using Financials arguments and represent this relationship graphically (10 points):
Problem 3: (Excel is not required)
Bimbo Inc preferred stock is selling for 12 € in the market and pays a 5.60 € annual dividend. If the market or promised yield is 10%
a-what is the value of the stock for that investor? (10 points)
b-Should the investor acquire the stock? Why? (10 points)
Problem 4: (Excel is not required)
Turbo Inc is considering an investment in one of two portfolios.
Portfolio 1 Portfolio 2
E(r) 7,4% E(r) 16,2%
Standard Deviation 8,26% Standard
Deviation 2,26%
Given the information that follows, complete the table below using financial arguments and formulas:
a) which investment is better based on return and why?
b) which investment is better based on risk and why?
c) which investment is better based on section a and b and why?
Better Portfolio Why? Justify using financial arguments and formulas
a-Based on Return
5
b-Based on Risk
5
c-Based on Risk and Return
10
Problem 5: (Excel is optional)
CoKi-Cola outstanding common stock is currently selling in the market for 13 $. Dividends of 2,3 $ per share were paid last year, return on equity is 20% and its retention rate is 25 %. Picture the problem, decide on a solution strategy, solve and analyze
a) What is the value of the stock to you given a required rated of return of 16%? (10 points)
b) Should you purchase this stock? (5 points)
Problem 6: (Excel is optional)
What is the yield to maturity of a corporate bond with 20 years to maturity, a coupon rate of 5 % per year, a $1,000 par value, and a current market price of $1,250? Assume semiannual coupon payments. Picture the problem, decide on a solution strategy, solve and analyze. (15 points)
