Questions from Corporate Finance

Q: A 10-year U.S. Treasury bond with a

A 10-year U.S. Treasury bond with a face value of $1,000 pays a coupon of 5.5% (2.75% of face value every six months). The reported yield to maturity is 5.2% (a six-month discount rate of 5.2/2 = 2.6%...

Q: A project produces a cash flow of $432 in year 1

A project produces a cash flow of $432 in year 1, $137 in year 2, and $797 in year 3. If the cost of capital is 15%, what is the project’s PV? If the project requires an investment of $1,200, what is...

Q: A six-year government bond makes annual coupon payments of 5

A six-year government bond makes annual coupon payments of 5% and offers a yield of 3% annually compounded. Suppose that one year later the bond still yields 3%. What return has the bondholder earned...

Q: A 6% six-year bond yields 12% and a

A 6% six-year bond yields 12% and a 10% six-year bond yields 8%. Calculate the six-year spot rate. Assume annual coupon payments.

Q: You have estimated spot rates as follows: r1 = 5.

You have estimated spot rates as follows: r1 = 5.00%, r2 = 5.40%, r3 = 5.70%, r4 = 5.90%, r5 = 6.00%. a. What are the discount factors for each date (that is, the present value of $1 paid in yea...

Q: CSC is evaluating a new project to produce encapsulators. The initial

CSC is evaluating a new project to produce encapsulators. The initial investment in plant and equipment is $500,000. Sales of encapsulators in year 1 are forecasted at $200,000 and costs at $100,000....

Q: Calculate durations and modified durations for the 3% bonds in Table 

Calculate durations and modified durations for the 3% bonds in Table 3.2. You can follow the procedure set out in Table 3.4 for the 9% coupon bonds. Confirm that modified durat...

Q: The continuously compounded interest rate is 12%. a. You

The continuously compounded interest rate is 12%. a. You invest $1,000 at this rate. What is the investment worth after five years? b. What is the PV of $5 million to be received in eight years? c....

Q: Find the spreadsheet for Table 3.4. in Connect.

Find the spreadsheet for Table 3.4. in Connect. Show how duration and volatility change if (a) the bond’s coupon is 8% of face value and (b) the bond’s yield is 6%. Explain your finding.

Q: The formula for the duration of a perpetual bond that makes an

The formula for the duration of a perpetual bond that makes an equal payment each year in perpetuity is (1 + yield)/yield. If each bond yields 5%, which has the longer duration—a perpetual bond or a 1...