1. (9 marks) The following table shows the yield to maturity (YTM) of various types of bonds on March 15, 2022. U.S. Tre

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1 9 Marks The Following Table Shows The Yield To Maturity Ytm Of Various Types Of Bonds On March 15 2022 U S Tre 1 (30.59 KiB) Viewed 34 times

1 9 Marks The Following Table Shows The Yield To Maturity Ytm Of Various Types Of Bonds On March 15 2022 U S Tre 2 (32.73 KiB) Viewed 34 times

1 9 Marks The Following Table Shows The Yield To Maturity Ytm Of Various Types Of Bonds On March 15 2022 U S Tre 3 (26.3 KiB) Viewed 34 times

1. (9 marks) The following table shows the yield to maturity (YTM) of various types of bonds on March 15, 2022. U.S. Treasury Corp. AAA Corp. AA 2-year 1.852% 2.117% 2.216% 5-year 2.107% 2.535% 2.704% 10-year 2.146% 2.942% 3.159% The YTM of a 3-month T-bill is 0.46%. a. What is the expected yield of a three-year Treasury two years from the date above according to the pure expectations theory? (3 marks) b. What is the risk premium of a 5-year T-note? (3 marks) c. What explains the 0.428% difference in YTM between a 5-year U.S. Treasury and a 5-year AAA corporate bond? (3 marks) 2. (11 marks) Yield Curves a. What is a yield curve and why are they typically upward sloping? (6 marks) c. Why is the flattening of the treasury yield curve considered an indicator of slower economy growth ahead? Explain. (5 marks)
4. (8 points) Bilibaba Inc.'s most recent dividend paid was $2.40 per share. The dividend is expected to grow at a rate of 6 percent per year in the foreseeable future. The risk- free rate is 5 percent and the return on the market is 9 percent. If the company's beta is 1.3 what is the price of the stock today? 5. (10 points) Consider the following 4-stock portfolio: Stock Investment Beta А $100,000 1.50 B $150,000 -0.25 с $250,000 1.25 D $500.000 0.75 The market required rate of return is 12 percent and the risk-free rate is 4 percent. a. Find the required rate of return of the portfolio. (4 marks) b. Find Bp, the beta of this portfolio. (3 marks) c. Use the portfolio B your obtained in part b. and the SML to verify that the required rate of return of the portfolio is the same as that in part a. (3 marks)
3. (12 points) Non-constant Growth Stock The last dividend paid by Company A was $2.4. Its growth rate is expected to be 2.5 percent for three years, after which dividends are expected to grow at a rate of 8 percent forever. The company's stockholders require a rate of return on equity of 12 percent 1 1. Draw a clear and accurate timeline of the expected cash flows. (4 marks) (The timeline should consist of time periods (t = 0,1,2,...), the dividend growth rate(s), and the cash flow associated with each period.) b. What is Po, the current price of the stock? (4 marks) c. What is P, the expected price of the stock a year later at t = 1? (4 marks)