1. You are considering a car loan with a stated APR of 6% based on monthly compounding. What is the effective annual rate of this loan?
2. Your company wants to raise $10 million by issuing 20-year zero-coupon bonds. If the yield to maturity on the bonds will be 6% (annually compounded APR), what total principal amount of bonds must you issue?
3. The yield to maturity of a $1000 bond with a 7% coupon rate, semiannual coupons, and two years to maturity is 7.6% APR, compounded semiannually. What must its price be?
4. Summit Systems will pay a dividend of $1.50 this year. If you expect Summit’s dividend to grow by 6% per year, what is its price per share if the firm’s equity cost of capital is 11%?
5. The following table contains prices and dividends for a stock. All prices are after the dividend has been paid. If you bought the stock on January 1 and sold it on December 31, what is your realized return?
Jan 1 10.00
Mar 31 11.00 0.20
Jun 30 10.50 0.20
Sep 30 11.10 0.20
Dec 31 11.00 0.20
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