BUSN 379 DeVry Week 3 Homework

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BUSN 379 DeVry Week 3 Homework

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BUSN 379 DeVry Week 3 Homework

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BUSN 379 DeVry Week 3 Homework

Chapter 6: 16

Chapter 7: 11 and 12

Week 3Assignment.Chapter 6: 16 and Chapter 7: 11 and 12

6.16.Find % Change of Bond Bill and Ted(24/24)

a.If the YTM suddenly rises to 9 percent:(Show work):

b.If the YTM suddenly falls to 5 percent:

c.

  1. What does this problem tell you about the interest rate risk of longer-term bonds?

7.11.With a return of 8 percent on this stock, how much should you pay? (4/4)

7.12.Value a stock with two different required returns. Use the constant growth model.(12/12)

a.Price @ required return of 12%:

b.Price @ required return of 8%:

c.What does a higher required return meanto the stock ?

6.16d: All else the same, the longer the maturity of a bond, the greater is its price sensitivity to changes in interest rates.

7.12c All else held constant, a higher required return means that the stock will sell for a lower price. Also, notice that the stock price is very sensitive to the required return. In this case, the required return fell by 1/3 but the stock price more than doubled.