1. Seven years ago, Goodwynn & Wolf Incorporated sold a 20-year bond issue with a 14% annual coupon rate and a 9% call premium. Today, G&W called the bonds. The bonds originally were sold at their face value of $1,000. Compute the realized rate of return for investors who purchased the bonds when they were issued and who surrender them today in exchange for the call price.
#2A 10-year, 12% semiannual coupon bond with a par value of $1,000 may be called in 4 years at a call price of $1,060. The bond sells for $1,100. (Assume that the bond has just been issued.)
a. What is the bond’s yield to maturity?
b. What is the bond’s current yield?
c. What is the bond’s capital gain or loss yield?
d. What is the bond’s yield to call?
#3. An individual has $35,000 invested in a stock with a beta of 0.8 and another $40,000 invested in a stock with a beta of 1.4. If these are the only two investments in her portfolio, what is her portfolio’s beta?
#4. Suppose you manage a $4 million fund that consists of four stocks with the following investments:
Stock Investment Beta
A $400,000 1.50
B $600,000 -0.50
C $1,000,000 1.25
D $2,000,000 0.75
If the market’s required rate of return is 14% and the risk-free rate is 6%, what is the fund’s required rate of return?