CHAPTER 5 B – 1
16. Miller Corporation
P0
Enter
26
3.1%
$41
$1,000
N
I/Y
PV
PMT
FV
Solve for
$1,176.73
P1
Enter
24
3.1%
$41
$1,000
N
I/Y
PV
PMT
FV
Solve for
$1,167.55
P3
Enter
20
3.1%
$41
$1,000
N
I/Y
PV
PMT
FV
Solve for
$1,147.41
P8
Enter
10
3.1%
$41
$1,000
N
I/Y
PV
PMT
FV
Solve for
$1,084.87
P12
Enter
2
3.1%
$41
$1,000
N
I/Y
PV
PMT
FV
Solve for
$1,019.11
Modigliani Company
P0
Enter
26
4.1%
$31
$1,000
N
I/Y
PV
PMT
FV
Solve for
$841.90
P1
Enter
24
4.1%
$31
$1,000
N
I/Y
PV
PMT
FV
Solve for
$849.08
P3
Enter
20
4.1%
$31
$1,000
N
I/Y
PV
PMT
FV
Solve for
$865.29
P8
Enter
10
4.1%
$31
$1,000
N
I/Y
PV
PMT
FV
Solve for
$919.29
P12
Enter
2
4.1%
$31
$1,000
N
I/Y
PV
PMT
FV
Solve for
$981.17
17. If both bonds sell at par, the initial YTM on both bonds is the coupon rate, 6.5 percent. If the YTM
suddenly rises to 8.5 percent:
PLaurel
Enter
8
4.25%
$32.50
$1,000
N
I/Y
PV
PMT
FV
Solve for
$933.36
PHardy
Enter
46
4.25%
$32.50
$1,000
N
I/Y
PV
PMT
FV
Solve for
$799.39
PLaurel
Enter
8
2.25%
$32.50
$1,000
N
I/Y
PV
PMT
FV
Solve for
$1,072.47
Enter
46
2.25%
$32.50
$1,000
N
I/Y
PV
PMT
FV
Solve for
$1,284.74
Enter
28
$28.50
$1,000
N
I/Y
PV
PMT
FV
Solve for
$740.24
Enter
28
$61.50
$1,000
N
I/Y
PV
PMT
FV
Solve for
$1,259.76
Enter
28
$28.50
$1,000
N
I/Y
PV
PMT
FV
Solve for
$625.78
PGonas
Enter
28
5.5%
$61.50
$1,000
N
I/Y
PV
PMT
FV
Solve for
$1,091.79
PGonas% = ($1,091.79 – 1,259.76)/$1,259.76 = –13.33%
If the YTM declines from 9 percent to 7 percent:
PFaulk
Enter
28
3.5%
$28.50
$1,000
N
I/Y
PV
PMT
FV
Solve for
$885.16
PGonas
Enter
28
3.5%
$61.50
$1,000
N
I/Y
PV
PMT
FV
Solve for
$1,468.18
PGonas% = ($1,468.18 – 1,259.76)/$1,259.76 = +16.54%
All else the same, the lower the coupon rate on a bond, the greater is its price sensitivity to
changes in interest rates.
19.
Enter
22
±$1,080
$32
$1,000
N
I/Y
PV
PMT
FV
Solve for
2.712%
YTM = 2.712% 2 = 5.42%
20. The company should set the coupon rate on its new bonds equal to the required return; the required
return can be observed in the market by finding the YTM on outstanding bonds of the company.
Enter
40
±$1,121.80
$32
$1,000
N
I/Y
PV
PMT
FV
Solve for
2.698%
2.698% 2 = 5.40%
23. Current yield = .0695 = $63/P0 ; P0 = $906.47
Enter
7.14%
±$906.47
$63
$1,000
N
I/Y
PV
PMT
FV
Solve for
22.9760
24.
Enter
26
±$1,043.55
$27
$1,000
N
I/Y
PV
PMT
FV
Solve for
2.471%
2.471% × 2 = 4.94%
26.
Bond P
P0
Enter
8
7%
$84
$1,000
N
I/Y
PV
PMT
FV
Solve for
$1,083.60
P1
Enter
7
7%
$84
$1,000
N
I/Y
PV
PMT
FV
Solve for
$1,075.45
Bond D
P0
Enter
8
7%
$56
$1,000
N
I/Y
PV
PMT
FV
Solve for
$916.40
P1
Enter
7
7%
$56
$1,000
N
I/Y
PV
PMT
FV
Solve for
$924.55
current income and capital gains.
27.
a.
Enter
21
±$865
$55
$1,000
N
I/Y
PV
PMT
FV
Solve for
6.72%
This is the rate of return you expect to earn on your investment when you purchase the bond.
b.
Enter
19
4.50%
$55
$1,000
N
I/Y
PV
PMT
FV
Solve for
$975.15
N
I/Y
PV
PMT
FV
Solve for
12.36%
PM
$0
CHAPTER 5 B – 5
C01
$0
F01
12
C02
$800
F02
16
C03
$1,000
F03
11
C04
$21,000
F04
1
I = 2.95%
NPV CPT
$17,791.23
Enter
Solve for
Enter
Solve for
Enter
Solve for
Enter
Solve for
Enter
Solve for
Enter
Solve for
Enter
Solve for
CHAPTER 5 B – 6
Enter
3.8462%
12
NOM
EFF
C/Y
Solve for
3.7800%
Stock portfolio value:
Enter
12 × 30
7.4337%/12
$700
N
I/Y
PV
PMT
FV
Solve for
$930,791.53
N
I/Y
PV
PMT
FV
Solve for
$184,509.85
Enter
25 × 12
3.7800%/12
N
I/Y
PV
PMT
FV
Solve for
Enter
30 + 25
N
I/Y
PV
PMT
FV
Solve for
Enter
4
$376,956
N
I/Y
PV
PMT
FV
Solve for
$532,104.16
Enter
3
$417,419.44
N
I/Y
PV
PMT
FV
Solve for
$540,570.28
Enter
2
$461,714.60
N
I/Y
PV
PMT
FV
Solve for
$548,563.12
Enter
1
$510,195.58
N
I/Y
PV
PMT
FV
Solve for
$556,113.18
CHAPTER 5 B – 7
Value of account = $2,340,599.77
Enter
25
9%
$2,340,599.77
N
I/Y
PV
PMT
FV
Solve for
$238,287.69