Problem Brief Solution Weight

10% 2 a PeterCo Bonds % YTM, maturity=10Years S&P Rating Order from most secure (1) to least (5) Mark with “x” the Junk Bonds A 3,1 BBB B 2,3 A C 4,6 BB D 17.9 CC E 12,3 CCC 10 b   10 20% 3 a) 10 b) 10 20% 4 Better Portfolio Why? Justify using financial arguments and formulas a-Based on Return 5 b-Based on Risk 5 Based on Risk and Return 10 20% 5 a) 10 b) 5 15% 6   15% Problem 1: (Excel is not required) Explain the different between Expected Rate of Return and free risk rate (10 points)                 Problem 2: (Excel is not required) PeterCo has the following Government Bonds: a-Complete the following table (Excel is not required, 10 points) PeterCo Bonds % YTM, maturity=10Years S&P Rating Order from most secure (1) to least (5) Mark with “x” the Junk Bonds A 3,1 BBB B 2,3 A C 4,6 BB D 17.9 CC E 12,3 CCC b) Explain this: “As interest rates increase (decrease), the value of the bond decreases (increases)”, using Financials arguments and represent this relationship graphically (10 points):             Problem 3: (Excel is not required) Bimbo Inc preferred stock is selling for 12 € in the market and pays a 5.60 € annual dividend. If the market or promised yield is 10% a-what is the value of the stock for that investor? (10 points)       b-Should the investor acquire the stock? Why? (10 points)   Problem 4: (Excel is not required) Turbo Inc is considering an investment in one of two portfolios. Portfolio 1 Portfolio 2 E(r) 7,4% E(r) 16,2% Standard Deviation 8,26% Standard Deviation 2,26% Given the information that follows, complete the table below using financial arguments and formulas: a) which investment is better based on return and why? b) which investment is better based on risk and why? c) which investment is better based on section a and b and why? Better Portfolio Why? Justify using financial arguments and formulas a-Based on Return 5 b-Based on Risk 5 c-Based on Risk and Return 10   Problem 5: (Excel is optional) CoKi-Cola outstanding common stock is currently selling in the market for 13 $. Dividends of 2,3 $ per share were paid last year, return on equity is 20% and its retention rate is 25 %. Picture the problem, decide on a solution strategy, solve and analyze a) What is the value of the stock to you given a required rated of return of 16%? (10 points)         b) Should you purchase this stock? (5 points)   Problem 6: (Excel is optional) What is the yield to maturity of a corporate bond with 20 years to maturity, a coupon rate of 5 % per year, a $1,000 par value, and a current market price of $1,250? Assume semiannual coupon payments. Picture the problem, decide on a solution strategy, solve and analyze. (15 points)