Week 3 Questions

1. Problem 8-13 P/E Ratio and Stock Price

Ultra Petroleum (UPL) has earnings per share of $1.43 and a P/E ratio 32.68. What's the stock price? ( Round your answer to 2 decimal places.)

2. Problem 6-3 Determinants of Interest Rates for Individual Securities

Dakota Corporation 15- year bonds have an equilibrium rate of return of 10 percent. For all securities, the inflation risk premium is 1.65 percent and the real risk-free rate is 3.30 percent. The security's liquidity risk premium is 0.75 percent and maturity risk premium is 1.35 percent. the security has no special covenants. Calculate the bond's default risk premium. ( Round your answer to 2 decimal places.)

3. Problem 6-11 Liquidity Premium Theory

Based on economist's forecasts and analysis, 1 year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows:

R1 = 0.80%

E(2r1) = 1.95% L2 = ).07%

E(3rl)  = 2.05% L3 = 0.11%

E (4rl)  = 2.35% L4 = 0.13%

Using the liquidity premium theory, determine the current ( long- term) rates. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

4. Problem 6-2 Determinants of Interest Rates for Individual Securities

You are considering an investment in 30-year bond issued by Moore Corporation. The bonds have no special convenants. The Wall Street Journal reports that 1-year T-bills are currently earning 2.05 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds:

Risk-free rate = 0.65%

Default risk premium = 1.95%

Liquidity risk premium = 1.40%

Maturity risk premium = 2.55%

A). What is the inflation premium? (Round your answer to 2 decimal places.)

B). What is the fair interest rate on Moore Corporation 30-year bonds? ( Round your answer to 2 decimal places.)

5. Problem 8-7 Buying Stock with a Market Order

You would like to buy shares of Sirius Satellite Radio (SIRI). The current as and bid quotes are $3.90 and $3.87, respectively. You place a market buy order for 520 shares that executes at these quoted prices.

How much money did it cost to buy these shares? ( Round your answer to 2 decimal places.)

Cost of Shares:

6. Problem 7-10 Bond Quotes

Consider the following three bond quotes: a Treasury bond quoted at 103:25, a corporate bond quoted at 96.50, and a municipal bond quoted at 100.90. If the Treasury and corporate bonds have a par value of $1000 and the municipal bond has a par value of a $5000, what is the price of these three bonds in dollars? (Do not round intermediate calculations and round your final answers to 2 decimal places.)

Treasury bond:

Corporate bond:

Municipal bond:

7. Problem 8-3 Buying Stock with Commissions

Your discount brokerage firm charges $8.95 per stock trade.

How much money do you need to buy 210 shares in Pfizer, Inc. (Pfe), which trades at $45.92? ( Round your answer to 2 decimal places.) 

Amount needed:

8. Problem 7-3 Time to Maturity

A bond issued by Ford on May 15,1997 is scheduled to mature on May 15, 2097. If today is November 16, 2020, what is this bond's time to maturity? ( Use 365 days a year.)

Time to maturity _______________ years and _______________ months

(. Problem 7-7 TIPS Interest and Par Value

1. Calculate the par value and current interest payment

A 3.125 percent TIPS has an original reference CPI of 185.1. If the current CPI is 210.4, what is the par value and current interest payment of the TIPS? ( Do not round intermediate calculations and round your final answers to 2 decimal places.)

Interest rate 3:125%

Reference CPI 185.1

Current CPI 210.4

Complete the following analysis. Do not hard code values in your calculations.

Par value

Interest payment

10. Problem 7-25 Bond Prices and Interest Rate Changes

1. Calculate the change in price the bond will experience.

A 6.50 percent coupon bond with ten years left to maturity is priced to offer a 8.0 percent yield to maturity. You believe that in one year, the yield to maturity will be 7.0 percent. What id the change in price the bond will experience in dollars? ( Do not round intermediate calculation and round your final answer 2 decimal places.)

Coupon rate 6.50%

Maturity   10

Present YTM   8.0%

Expected YTM in 1 year  7.0%

Complete the following analysis. Do not hard code values in your calculations.

Current price:

Expected price in 1 year: 

Change in price: