3. Calculation (10 Score × 6) (1) An investor purchased a $10, 000, 5-year corpo

Question

3. Calculation (10 Score × 6) (1) An investor purchased a $10, 000, 5-year corporate note one year ago for $10, 440. The note pays an annual coupon of $600. Over the past year, the note's annual yield-to-maturity has dropped by 1%. What total return did the investor earn over the year? (2) An analyst gathers the following information: $100 30 25 17 10 5 17 150 340 5 Net income Decrease in accounts receivable Depreciation Increase in inventory Increase in accounts payable Decrease in wages payable Increase in deferred taxes Sale of fixed assets Purchase of fixed assets Profit from the sale of fixed assets Dividends paid out Sale of new common stock 35 120 sed on the above information, the company's cash flow from operations is? Ba (3) Greenbaum, Inc. stock pays no dividend and currently trades at $54. Based on the CAPM and assuming an expected return on the market of 12% and a risk-free rate of 8%, the expected price for Greenbaum one year from now is $62. The beta of Greenbaum shares is ? (4) An investor buys a stock at $32 a share and deposits 50% initial margin. Assume that the maintenance margin is 25%. The stock pays no dividends, and transaction costs and interest on the margin loan are zero. The price at which the investor would receive a margin call is ? (5) A stock that currently does not pay a dividend is expected to pay its first dividend of $1.00 five years from today. Thereafter, the dividend

Explanation / Answer

Answer to Question 1:

At the beginning of the year:

Face Value of Note = $10,000
Purchase Price = $10,440
Annual Coupon = $600
Period = 5 years

Let Annual YTM be i%

$10,440 = $600 * PVIFA(i%, 5) + $10,000 * PVIF(i%, 5)

Using financial calculator:
N = 5
PV = -10440
PMT = 600
FV = 10000

I = 4.98%

So, YTM is 4.98%

At the end of the year:

Face Value of Note = $10,000
Annual Coupon = $600
Period = 4 years
Annual YTM = 3.98%

Selling Price = $600 * PVIFA(3.98%, 4) + $10,000 * PVIF(3.98%, 4)
Selling Price = $600 * (1 - (1/1.0398)^4) / 0.0398 + $10,000 / 1.0398^4
Selling Price = $10,734

Total Return earned = (Selling Price + Coupon received - Purchase Price) / Purchase Price
Total Return earned = ($10,734 + $600 - $10,440) / $10,440
Total Return earned = 8.56%

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