Complete Problem Set 4. Instructions for this assignment are located in the Files section.

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Problem Set 4

Q1.

(a) $103 – $88 = $15

(b) $15 x $150 = $2250

Q2.

(a)  

              $7400 - $8000 = (600)

              (600) + 100 = (500)

             (500) ÷ 8000 = 0.0625

               Rate of return = 6.25%

(b) The rate of return is negative

Q3. (a).    Earnings per Share = After-Tax Earnings ÷ Outstanding no. Shares  

              $2,000,000 ÷ 750,000 = $2.67

    b.    P/E Ratio = Market Value ÷ Earnings per Share

               $40 ÷ 2.67 = 14.98 P/E Ratio = 15  

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Book Value = Assets – Liabilities ÷ No. of Shares  

$9,000,000 - $5,000,000 ÷ 750,000 = $5.33

Q4.

(a) $1,000 x 9.5 percent = $95  

(b) 95 annual interest ÷ 8 percent = $1,187.50  

(c)  

This bond increased in value because the bond had a fixed interest rate of 9.5 percent when the economy had a decreasing interest rate

Q5.

(a) $4K - $30 = $3,970 / $45 = 88 Shares

(b) $8K - $50 = $7,950 / $45 = 177 shares

(c) $88 x 53 = $4,664 - $90 = $4,574

Q6. (a)

           $850 x 9% = 76.5 ÷ 850 = 0.09  

Market Value is the face value. So $1000 x 9% = 90

$90 ÷ $850 = 10.6 %

CY = 10.6%

b. YTM=(C +(F-P)/n)/(F +P)/2

$76.50 + [($1000 – $850) ÷ 9] ÷ [($1000 + $850) ÷ 2]  

$76.50 + (150 ÷ 9) ÷ (1850 ÷ 2)  

76.50 + (16.67) ÷ 925

93.17 ÷ 925 = 0.1007

YTM=10.07%