Question 1. True or Disagree and Explain For a publicly traded company, we shoul

Question

Question 1. True or Disagree and Explain For a publicly traded company, we should use book value of equity to calculate Enterprise Value. Question 2. Bond YTM Rocky Mountain Inc (RM) has an outstanding corporate bond with 5 years to maturity, face value of $1000 and a credit rating of BB. The bond pays semi-annual coupon with a coupon rate of 8% The closing price of the bond on 6/8/2018 is 98.2. Calculate the YTM of RM's 5-year bond based on the closing pricing. Tip: Bond is quoted as percentage of face value in the market, i.e. 98.2 in this question. Use the following formula to convert bond quote into bond price: Bond price-Bond quote% x Bond Face Value Question 3. Beta Rank beta of the following five investment to support your ranking (don't look up the beta in the financial websites or databases, base your ranking on your understanding and intuition): choices from the highest to lowest and Include rationale Electric Utility Company's Stock Biotech Company' Stock -month Treasury Bill S&P500; Index Gold

Explanation / Answer

1)False and we have to use market vlaue of the equty isntead of book value
2)use rate formuale in excel
=rate(nper,pmt,pv,fv,type)
=rate(5*2,(1000*8%/2),(-98.2%*1000),1000,0)
=4.22%
annaul YTM=4.22%*2=8.45%
3)The ranking is below:
biotech stock
electric utility stock
s&p 500
3 month treasury bil
GOld
The beta is highest for biotech since it is more risky than the electric utility stock which is commodity kind of stock
s&p 500 have beta of 1 and 3 month treasury no risk so it is 0 and for gold it is in negative

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