Melody

Sat 15/11/14

1) More Physics for me to learn.  Thanks Alan.

None that I can see.  Thanks Alan :))

All answered  Thank you   :)))

Once again I am not 100% comfortable with the terminology BUT

I assume 4.8% is the nominal rate and you want the effective rate.

1+effective rate = (1+0.048/365)^365

effective rate = (1+0.048/365)^365 -1

$${\left({\mathtt{1}}{\mathtt{\,\small\textbf+\,}}{\frac{{\mathtt{0.048}}}{{\mathtt{365}}}}\right)}^{{\mathtt{365}}}{\mathtt{\,-\,}}{\mathtt{1}} = {\mathtt{0.049\: \!167\: \!344\: \!264\: \!922\: \!5}}$$

the effective interest rate is 4.9167%

Charlie Company is expected to grow at an annual rate of 6% indefinitely. The return on similar stocks is currently 11%. Charlie's board of directors declared a dividend of $1.85 yesterday. What should a share of Charlie Company sell for?

This one I am totally guessing BUT

if the return is 11% and the growth is 6% then the dividend must be 11-6=5%

You question does not say how often the dividend is paid but I will assume it is yearly.

5%X=1.85

X=1.85 / 0.05

X= $37

that might be the answer  LOL 

A $1,000 corporate bond with 20 years to maturity pays a coupon of 7% (semi-annual) and the market required rate of return is a) 6.6% b) 13%. What is the current selling price for a) and b)?

I just answered one almost identical to this so you can copy the technique of that one.  :)

I do not know how US govt bonds work.

I assume the redepmtion value is the same as the face value.

Don't they pay any interest.  That doesn't sound  right.     

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I can see what you have done SevenUp.

You have simply found the present value of  $10000 given that the annual value is 3.5%.

Mmm okay.

Now that I have done the first one you can copy the technique and do the second one yourself.   

A $1,000 corporate bond with 10 years to maturity pays a coupon of 8% (semi-annual) and the market required rate of return is a) 7.2% 

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First lets think about this a bit.

You will be happy with at return of 7.2%.  This is less than the coupon rate of 8% so that means you will be prepared to pay more than $1000 for the bond.  You will use this logic when you check the reasonableness of the answer that we will get.  

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r=0.08/2=0.04 every 6 months

i=0.072/2=0.036 every 6 months

C=1000

$$P=C+[(I-Ci)a_{n|i}]$$

Where 

n=20 (lots fo 6 months) and

$$a_{n|i}\\\\
=\frac{1-(1+i)^{-n}}{i}\\
=\frac{1-(1+0.036)^{-20}}{0.036}\\
=\frac{1-(1.036)^{-20}}{0.036}\\$$

$$\left({\frac{\left({\mathtt{1}}{\mathtt{\,-\,}}{{\mathtt{1.036}}}^{\left(-{\mathtt{20}}\right)}\right)}{{\mathtt{0.036}}}}\right) = {\mathtt{14.084\: \!658\: \!505\: \!338\: \!905\: \!8}}$$

near enough to 14.08466

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$$\\P=C+[(I-Ci)a_{n|i}]\\\\
P=1000+[(40-1000*0.036)*14.08466]\\
P=1000+[(40-36)*14.08466]\\
P=1000+[4*14.08466]\\$$

$${\mathtt{1\,000}}{\mathtt{\,\small\textbf+\,}}\left[{\mathtt{4}}{\mathtt{\,\times\,}}{\mathtt{14.084\: \!66}}\right] = {\mathtt{1\,056.338\: \!64}}$$

The price you wil pay to get a return of 7.2% is   $1056.34

this is more than $1000 so it fits with the reasonableness check   

I thought you needed another interest rate.  A desired return.  

It seems to me that the price should still be $10000.

Let us know when you get your answer.  

I am not at all sure that any one here can answer this question any better.

You say it is yeilding 3.5% is that per annum?  When are the payments made?

Let us know when you find out the answer.