A. Grand Adventure Properties offers a 9.5 percent coupon bond with annual payme

Question

A. Grand Adventure Properties offers a 9.5 percent coupon bond with annual payments. The yield to maturity is 10 percent and the maturity date is 12 years from today. What is the market price of this bond if the face value is $1,000?
A. $967.52
B. $996.67
C. $941.20
D. $965.93
E. $953.30

B. The common stock of Manchester & Moore is expected to earn 13 percent in a recession, 6 percent in a normal economy, and lose 4 percent in a booming economy. The probability of a boom is 5 percent while the probability of a recession is 45 percent. What is the expected rate of return on this stock?
A. 8.52 percent
B. 8.74 percent
C. 8.65 percent
D. 9.05 percent
E. 9.28 percent

C. If the economy is normal, Charleston Freight stock is expected to return 16.5 percent. If the economy falls into a recession, the stock's return is projected at a negative 11.0 percent. The probability of a normal economy is 80 percent while the probability of a recession is 20 percent. What is the variance of the returns on this stock?
A. 0.010346
B. 0.012634
C. 0.013000
D. 0.013927
E. 0.012100

Explanation / Answer

(A). Grand Adventure Properties..... Correct answer choice is 'C' i.e.$965.93

Normally market value is equilibrium price to it's present value of all cash flows to be received over it's life. In other words, Market Price or value shuld be prsent value of all coupon amount to be received over 12 years & PV of Face Value to be received after 12 year. YTM 10% to be traeted as discounting rate.Hence PVIFA

=(Coupon x PVIFA10%,12y)+ (FV x PVIF10%12y ) = ($95 x 6.8137)+($1,000 x 0.3186) = $647.30 + $318.60 = $965.90

(B) Manchester & Moore.............Correct answer choice is 'C' i.e.8.65 percent

(C) Charleston Freight stock........... Correct answer choice is 'E' i.e. 0.012100

Economy Return (R ) Prob. (P) R x P Recession 13% 0.45 0.0585 Normal 6% 0.50 0.0300 Booming -4% 0.05 -0.0020 SUM= 0.0865

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