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BUSN 379 DeVry Week 3 Homework
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Chapter 6: 16
Chapter 7: 11 and 12
Week 3Assignment.Chapter 6: 16 and Chapter 7: 11 and 12
6.16.Find % Change of Bond Bill and Ted(24/24)
a.If the YTM suddenly rises to 9 percent:(Show work):
b.If the YTM suddenly falls
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b.If the YTM suddenly falls to 5 percent:
d. What does this problem tell you about the interest rate risk of longer-term bonds?
7.11.With a return of 8 percent on this stock, how much should you pay? (4/4)
7.12.Value a stock with two different required returns. Use the constant growth model.(12/12)
a.Price @ required return of 12%:
b.Price @ required return of 8%:
c.What does a higher required return meanto the stock ?
6.16d: All else the same, the longer the maturity of a bond, the greater is its price sensitivity to changes in interest rates.
7.12c All else held constant, a higher required return means that the stock will sell for a lower price. Also, notice that the stock price is very sensitive to the required return. In this case, the required return fell by 1/3 but the stock price more than doubled.