CHAPTER 5 – Problems p. 210-211
5-1) Market price formula = INT*r*[1 -(1+rd)-n]/i + M*(1+rd)-n, where
INT = par value
M= maturity value r = coupon rate per coupon payment period rd= effective interest rate per coupon payment period n = number of coupon payments remaining

Market price of bonds = 1000*.08 * (1 - 1.09-12)/.09 + 1000*1.09-12
Market price of bonds = $928.39

5-2) Value of the bond formula = 1nPar value*Coupon rate1+YTMt+Par value1+YTMn
Time to maturity = 12
Par value = $1,000
Coupon rate = 10%
Price of the bond = $850

Yield to maturity =12.475%

5-6) r = r* + IP + MRP
6.3 = 3 + 3 + MRP
6.3 – 6 = MRP
0.3 = MRP

5-7) N = 16
I/YR = 8.5/2 = 4.25
PMT = 50
FV = 1000

Excel Input: PV(0.0425,16,50,1000) = $1,085.80

5-13) N= 5
PMT = 80 FV = 1000
I/YR = ?
Current yield = 8.21%

Current yield = Annual interest/Current price
0.0821 = $80/PV
PV = $80/0.0821 = $974.42.

Excel Input : N = 5, PV = -974.42, PMT = 80, and FV = 1000. I/YR = YTM = 8.65%

CHAPTER 6 – Questions p.257
6-6) If a company’s beta were to double, I would not expect the company’s return to double. The return would be expected to increase by an amount equal to the market risk premium times the change in beta.

CHAPTER 6 – Problems p. 258-259

6-1) ($35,000/$75,000)(0.8) + ($40,000/$75,000)(1.4) = 1.12 Bp = 1.12
6-2) Ri = rRF + (Rm – rRF) bi
Ri = 6% + (13% - 6%) 0.7
Ri = 10.9 %

6-7) a. Ri = rRF + (Rm – rRF) bi
Ri = 9% + (14% - 9%) 1.3
Ri = 15.5 %

b. In this case the Rm will increase by 1% if the rRF is increased by 1%. If the rRF is decreased to 8% then the Rm will decrease by 1%.
Ri = 10% + (15% - 10%) 1.3
Ri = 16.5%

Ri = 8% + (13% -8%) 1.3
Ri = 14.5%

c. Ri = rRF + (Rm – rRF) bi
Ri = 9% + (16% - 9%) 1.3
Ri = 18.1 %

Ri = 9% + (13% - 9%) 1.3
Ri =