16) Rogue Racing Inc. has $1,000 par value bonds with a coupon rate of 8% per ye

Question

16) Rogue Racing Inc. has $1,000 par value bonds with a coupon rate of 8% per year making semiannual
coupon payments. If there are twelve years remaining prior to maturity and these bonds are selling for $896.40, what is the yield to maturity for these bonds?

17) Joe bought a share of stock for $47.50 that paid a dividend of $.92 and sold one year later for $51.38. What was Joe's dollar profit or loss and holding period return?

18) Consider the following ten-year project. The initial after-tax outlay or after-tax cost is $1,000,000. The
future after-tax cash inflows each year for years 1 through 10 are $400,000 per year. What is the payback period without discounting cash flows?

Explanation / Answer

Hi,

Please find the detailed answer as follows:

16)

Nper = 12*2 = 24 (indicates the period over which interest payments are made)

PMT = 1000*8%*1/2 = 40 (indicates the amount of interest payment)

PV = 896.40 (indicates the current selling price)

FV = 1000 (indicates the face value of bonds)

Rate = ? (indicates YTM)

YTM = Rate(Nper,PMT,PV,FV)*2 = Rate(24,40,-896.40,1000)*2 = 9.46%

Answer is 9.46%

17)

Dollar Profit and Loss = Sales Value - Purchase Value + Dividend = 51.38 - 47.50 + .92 = $4.80

Holding Period Return = (Sales Value - Purchase Value + Dividend)/Purchase Value*100 = (4.80/47.50)*100 = 10.11%

18)

Payback Period = Initial Investment./Annual Cash Inflows = 1000000/400000 = 2.5 Years

Thanks.

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