Investment

Calculation of Current yield

Annual coupon = Annual coupon rate x Par value
= 4.8% x $1000= $48
Current yield = Annual Coupon / Bond Price
= $48 / $970= 4.95%

156.	A nine-year bond has a yield of 10% and a duration of 7.194 years. If the bond’s yield changes by 50 basis points, what is the percentage change in the bond’s price? D = Duration of the bond = 7.194 years y = Yield to maturity = 10% Δy = Δ (1 + y) /(1 + y) = Change in the Yield to maturity Calculation of the percentage bond price change Percentage bond price change can be calculated by the formulae: - Duration x Δy / 1 + y = - 7.194 x 0.0050 / 1.10 = - 0.0327 or 3.27% decline.
157.	You own a fixed-income asset with a duration of five years. If the level of interest rates, which is currently 8%, goes down by 10 basis points, how much do you expect the price of the asset to go up (in percentage terms)? D = Duration of the bond = 5 years y = Yield to maturity = 8% Δy = Δ (1 + y) /(1 + y) = Change in the Yield to maturity Step 2: Calculation of the percentage bond price change Percentage bond price change can be calculated by the formulae: - Duration x Δy / 1 + y = - 5.0 x -0.0010 /1.08 = 0.00463 = 0.463% increase
158.	You expect the price of IBX stock to be $59.77 per share a year from now. Its current market price is $50, and you expect it to pay a dividend one year from now of $2.15 per share. What is the stock’s expected dividend yield, rate of price appreciation, and expected holding-period return? Dividend Yield = $2.15 / $50 = 4.3% Capital Gains Yield = ($59.77 - $50) / $50 = 19.54% Total Return = 4.3% + 19.54% = 23.84%
159.	You expect the price of IBX stock to be $59.77 per share a year from now. Its current market price is $50, and you expect it to pay a dividend one year from now of $2.15 per share. If the stock has a beta of 1.15, the risk-free rate is 6% per year, and the expected rate of return on the market portfolio is 14% per year, what is the required rate of return on IBX stock? k = 6% + 1.15 * (14% - 6%) = 15.2%
160.	You expect the price of IBX stock to be $59.77 per share a year from now. Its current market price is $50, and you expect it to pay a dividend one year from now of $2.15 per share. What is the intrinsic value of IBX stock, and how does it compare to the current market price? V0 = ($2.15 + $59.77) / 1.152 = $53.75 > $50 market price , so stock is undervalued and it is a buying opportunity