A lengthy worksheet containing practice problems and solutions concerning security valuation. Useful for studying for finance tests in undergraduate or graduate programs.
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SECURITY VALUATION PRACTICE 1. Find the price of a $10,000 treasury bill that matures in 83 days. The yield is 0.70% per year. (2 points) 2. Find the price of a 20-year $1000 bond with a coupon rate of 5% and a yield to maturity of 4.0% per year compounded semiannually. This bond makes payments semiannually. (3 points) 3. A stock has just paid a quarterly dividend of $0.50. Dividends are expected to grow 2.0% per quarter. Given a cost of equity of 14% per year, compounded quarterly, find the price of the stock. (2 points)
Transcript
SECURITY VALUATION PRACTICE
1. Find the price of a $10,000 treasury bill that matures in 83 days. The yield is 0.70% per
year. (2 points)
Price = 15.9984
0070.1
000,10365/83
2. Find the price of a 20-year $1000 bond with a coupon rate of 5% and a yield to maturity of
4.0% per year compounded semiannually. This bond makes payments semiannually. (3
points)
Coupon payments = .05 x 1000 / 2 = $25
r6 = .04 / 2 = .02
# payments = 2 x 20 = 40
Price = 1,136.781.02
1000
1.02
11
.02
254040
3. A stock has just paid a quarterly dividend of $0.50. Dividends are expected to grow 2.0%
per quarter. Given a cost of equity of 14% per year, compounded quarterly, find the price of
the stock. (2 points)
rQ = .14 / 4 = .035
Price = 3402.035.
)02.1(50.0
SECURITY VALUATION PRACTICE
1. Find the price of a $10,000 treasury bill that matures in 83 days. The yield is 0.70% per
year. (2 points)
Price =
15.99840070.1
000,10365/83
2. Find the price of a 20-year $1000 bond with a coupon rate of 5% and a yield to maturity of
4.0% per year compounded semiannually. This bond makes payments semiannually. (3
points)
Coupon payments = .05 x 1000 / 2 = $25
r6 = .04 / 2 = .02
# payments = 2 x 20 = 40
Price =
1,136.781.02
1000
1.02
11
.02
254040
3. A stock has just paid a quarterly dividend of $0.50. Dividends are expected to grow 2.0%
per quarter. Given a cost of equity of 14% per year, compounded quarterly, find the price of
