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FM Q assignment 3

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8 views2 pages

FM Q assignment 3

Uploaded by

yuhan shi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Financial Management Assignment No.

3 Dead-line: 2022/11/15
Name(s) : Student No.

Important Notes:
A. Assignment must be submitted in MS word or pdf format, other format is not
acceptable and will not be graded.
B. Assignment should be submitted in hard copy during class or by e-mail to WEMUST-
MODDLE.
C. Show all your formula used, calculation process and answer for each question.

1. A Corp. issues a 15 years’ bond with par value $10,000 at coupon rate 9% now and
market interest rate (Kd) is 9%, what is the bond’s price? If Kd is fixed at 9% in
year 2 what will be the bond’s value in year 2?

2. B Corp. issues a 15 years’ bond with par value $10,000 at coupon rate 9% with
yearly coupon payment. If the market interest rate (Kd) raises to 10% one year
after bond issued, what will be the bond’s price? If Kd remains 10% unchanged to
maturity, what will the bond’s value in year 2? What is the bond’s value in year 14?

3. What is price of a 10 years’ zero coupon bond with par value $1,000, YTM is 10%?
If the zero coupon bond is re-pricing every 6 months, what will be the bond value?

1
4a. Suppose you are thinking of purchasing the stock of M Inc. now. You expect it can get $2
dividend in one year. You believe you can sell the stock for $14 at that time. Your required
return is 20% on investments of this risk. What is the maximum you would be willing to pay?

4b. Follow the above question, what will be the price if you decide to hold the stock for two
years with dividend growth rate 5% and so does the market price? What is the price now you
would be willing to pay?

4c. Follow the above question, what will be the price (in year 3) if you decide to hold the stock
for three years? What is the price now you would be willing to pay?

5. A company wants to raise 500 million in a new stock issue. Its investment banker
indicates that the sales of new stock will require 8% underpricing and a 7% spread.
Assuming the company stock price does not change from its current price of $75 per
share, how many shares must the company sell and at what price to the public? How
much money will be investment banking syndicates earn on the sale.
(Notes: underpricing is 8% of the current market price and 7% spread is of the issue price)

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