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FIN 351 DEVRY WEEK 4 HOMEWORK ASSIGNMENT
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FIN 351 DeVry Week 4 Homework Assignment
Answer the following items from your textbook:
* Chapter 11 Discussion Question 3
* Chapter 11 Discussion Question 11
* Chapter 11 Problem 2
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Chapter 11 Discussion Question 3
Chapter 11 Discussion Question 11
Chapter 11 Problem 2
Chapter 11 Problem 6
Chapter 11 Problem 8
Chapter 12 Discussion Question 3
Chapter 12 Problem 2
Chapter 12 Problem 6
Chapter 12 Problem 7
Chapter 12 Problem 16
Chapter 18 Discussion Question 5
Chapter 18 Problem 5
Submit your answers in a Word document to the Week 4 Assignments Dropbox.
Submit your assignment to the Dropbox, located at the top of this page. For instructions on how to use the Dropbox, read these .equella.ecollege.com/file/8ff9f27a-3772-48cf-9855-4bec4e6706bf/1/Dropbox.html”>step-by-step instructions.
See the Syllabus section “Due Dates for Assignments & Exams” for due date information.
• Chapter 11 Discussion Question 3 (Page 308)– Explain how a sinking fund works.
• Chapter 11 Discussion Question 11 (Page 308)- What tax advantages are associated with municipal bonds?
• Chapter 11 Problem 2 (Page 309)- If an investor is in a 30 percent marginal tax bracket and can purchase a straight (nonmunicipal bond) at 8.37 percent and a municipal bond at 6.12 percent, which should he or she choose?
• Chapter 11 Problem 6 (Page 309)- Assume a $1,000 Treasury bill is quoted to pay 5 percent interest over a six-month period.
How much interest would the investor receive? 6 month period:
What will be the price of the Treasury bill?
What will be the effective yield?
• Chapter 11 Problem 8 (Page 309)- The price of a Treasury strip note or bond can be found using.vitalsource.com/books/0077637011/content/id/appC”>Appendix C toward the back of the text. It is simply the present value factor from the table times the maturity (par) value of the Treasury strip. Assume you are considering a $10,000 par value Treasury strip that matures in 25 years. The discount rate is 7 percent. What is the price (present value) of the investment?
• Chapter 12 Discussion Question 3 (Page 332)- Why does a bond price change when interest rates change?
• Chapter 12 Problem 2 (Page 333)- Given a 15-year bond that sold for $1,000 with a 9 percent coupon rate, what would be the price of the bond if interest rates in the marketplace on similar bonds are now 12 percent? Interest is paid semiannually. Assume a 15-year time period.
• Chapter 12 Problem 6 (Page 333)- What is the current yield of an 8 percent coupon rate bond priced at $877.60?
• Chapter 12 Problem 7 (Page 333)- What is the yield to maturity for the data in.vitalsource.com/books/0077637011/content/id/P12-177″>problem 6? Assume there are 10 years left to maturity. It is a $1,000 par value bond. Use the trial-and-error approach with annual analysis. [Hint: Because the bond is trading for less than par value, you can assume the interest rate (i) for which you are solving is greater than the coupon rate of 8 percent.]
• Chapter 12 Problem 16 (Page 333)- The following pattern for one-year Treasury bills is expected over the next four years:
What return would be necessary to induce an investor to buy a two-year security?
What return would be necessary to induce an investor to buy a three-year security?
What return would be necessary to induce an investor to buy a four-year security?
• Chapter 18 Discussion Question 5 (Page 488)- As market rates of interest become higher, what impact does this have on duration?
• Chapter 18 Problem 5 (Page 490)- You are considering the purchase of two $1,000 bonds. Your expectation is that interest rates will drop, and you want to buy the bond that provides the maximum capital gains potential. The first bond has a coupon rate of 6 percent with four years to maturity, while the second has a coupon rate of 14 percent and comes due six years from now. The market rate of interest (discount rate) is 8 percent. Which bond has the best price movement potential? Use duration to answer the question.nt/
• Chapter 18 Problem 5 (Page 490)- You are considering the purchase of two $1,000 bonds. Your expectation is that interest rates will drop, and you want to buy the bond that provides the maximum capital gains potential. The first bond has a coupon rate of 6 percent with fo