(TCO2) Semi tool Corp has an expected excess return of 6% for next year. However, for every unexpected 1% change in the market,

FIN 385 Fixed Income Securities and Credit Analysis Week 4 Midterm Essay Answers


(TCO2)Semi tool Corp has an expected excess return of 6% for next year. However, for every unexpected 1% change in the market, Semitool's return responds by a factor of 1.2. Suppose it turns out that the economy and the stock market do better than expected by 1.5% and Semitool's products experience more rapid growth than anticipated, thus pushing up the stock price by another 1%. Based on this information, what was Semitool's actual excess return? 

(TCO2) What is the expected return of the three-issue portfolio with the following characteristics? 

(TCO5) The nominal interest rate is 6%and the inflation rate is 3%. What is the exact real interest rate? 

(TCO5) Calculate the appropriate selling price of a 30-year5% annual coupon paid semiannually, $1,000 corporate bond that was purchased five years ago. Marketplace interest rates are averaging 8%. 

(TCO6) What is the interest rate needed on a $1,000facevalue 5% coupon corporate bond in order to make it equivalent in terms

of return to one whose interest rate is tax free? Assume the corporate tax rate is 30%. 

(TCO8) Using the security market line formular a therthanthe dividend discount formula, determine the expected return on a firm's common stock when 

(TCO6) You bought a $1,000 bond at a YTM of 6%. It has an 8% coupon that is paid semiannually and a 20-year maturity. The trade settled two days ago and the most recent coupon payment occurred 32 days ago. What was the invoice price that you were required to pay? 

(TCO2) Find the expected return and variance of a two-asset  portfolio, 65% bonds and 35% stocks. The expected return is 6% for bonds and 10% for stocks. The variances are 12% for bonds and 25% for stock. Assume that the correlation coefficient between bonds and stock = 0.