DeVry BUSN 379 Week 3 Homework – Updated
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WEEK 3
Homework
(graded)
Chapter 6: 16
Chapter 7: 11 and 12
Homework (graded)
Chapter 6: 16
Interest Rate Risk. Both Bond Bill and Bond Ted have 7
percent coupons, make semiannual payments, and are priced at par value. Bond
Bill has 3 years to maturity, whereas Bond Ted has 20 years to maturity. If
interest rates suddenly rise by 2 percent, what is the percentage change in the
price of Bond Bill? Of Bond Ted? If rates were to suddenly fall by 2 percent
instead, what would the percentage change in the price of Bond Bill be then? Of
Bond Ted? Illustrate your answers by graphing bond prices versus YTM. What does
this problem tell you about the interest rate risk of longer-term bonds?
Chapter 7: 11 and 12
Problem 11
Valuing Preferred Stock. E-Eyes.com has a new issue of
preferred stock it calls 20/20 preferred. The stock will pay a $20 dividend per
year, but the first dividend will not be paid until 20 years from today. If you
require a return of 8 percent on this stock, how much should you pay today?
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