YTM=10.

40%

YTM of BOND

PV
Year Amount of PV Present Value
Part culars Factor@11
s Cashflow Factor@10% of Cashflow
%
Net Annual Cash Inflow 1 75 0.9091 68.18 0.9009
Net
2 75 0.8264 61.98 0.8116
Annual Cash Inflow
Net Annual Cash Inflow 3 1575 0.7513 1183.32 0.7312

Price of Bond Now -1300 1.0000 -1300.00 1.0000

Net Present Value 13.49 -19.93

YTM= 10.4036505087
r
b) Price of bond When YTM is 6% = 1459.90
Price of Bond
Part culars Years Amount of Cashflow

Net Annual Cash Inflow 1 75

Net Annual Cash Inflow 2 75
Net Annual Cash Inflow 3 1575

Price of bond
c) Withcoupon rate 2.5% paid semiannually if bond has 2.7% current Yeild,Present vl
lessthan facevalue of bond. Hence Bond is sold at discount.
Particulars Years Amount of PV
Net Annual Cash Inflow 1 Cashflow
25 Factor@
0.9867 .35%
Net Annual Cash Inflow 2 25 0.9735
Net Annual Cash Inflow 3 25 0.9606
Net Annual Cash Inflow 4 25 0.9478
Net Annual Cash Inflow 5 25 0.9351
Net Annual Cash Inflow 6 25 0.9227
Net Annual Cash Inflow 7 25 0.9104
Net Annual Cash Inflow 8 25 0.8983
Net Annual Cash Inflow 9 25 0.8863
Net Annual Cash Inflow 10 2025 0.8745
Price of BOND 1981.41
d) YTM = 2.5%,Since the bond is priced at face value coupon rate and YTM will be same.
YTM of
BOND
Particulars Year Amount of PV Present Value
s Cashflow Factor@ .25% of Cashflow

Net Annual Cash 24.69

Inflow 1 25 0.9877
Net Annual Cash 2 25 0.9755 24.39
Inflow
Net Annual Cash 3 25 0.9634 24.09
Inflow
Net Annual Cash 4 25 0.9515 23.79
Inflow
Net Annual Cash 5 25 0.9398 23.49
Inflow
Net Annual Cash 6 25 0.9282 23.2
Inflow
Net Annual Cash 7 25 0.9167 22.92
Inflow
Net Annual Cash 8 25 0.9054 22.63
Inflow
Net Annual Cash 9 25 0.8942 22.36
Inflow
Net Annual Cash 10 2025 0.8832 1788.44
Inflow
Initial Investment Now -2000 1 -2000
Net Present Value 0
 Present 1
Value of
Cashflow
67.57

60.87

1151.63

-1300.00

PV Present Value of Cashflow

Factor@6%

0.9434 70.75
0.89 66.75
0.8396 1322-40

1459.9
Yeild,Present vlaue of bond is

PV Present Value of Cashflow

Factor@ .35% 24.67
24.34
24.01
23.69
23.38
23.07
22.76
22.46
22.16
1770.87
l be same.
a)
D1 $ 0.40
g 2.80%
r 5%
Price Today P0=D1/(r-g)
$ 18.18

b)
D2 D1 x (1+g)
$ 0.41
Price in 1 year, P1 = D2 / (r - g)
$ 18.69

c)
Expected Return (P1 + D1) / P0 - 1
5.06%

d)
D1 $ 0.10
g 1.20%
Price Po D1 / (r - g)
2.63157894736842

e)
D2 D1x(1+g)
D2 $ 0.10
P1 D2/(r-g)
P1 $ 2.66

f)
Expected Return (P1 +D1)/Po
Expected Return 1.05

g)
No, since the required return is the same, and since the stocks are fairly priced and have the same, yo
ced and have the same, you would earn the same return of 5% in either case, so Cheetah is not a better investm
eetah is not a better investment (or a worse investment)
Cost of Capital 0.065
Year Cashflow Present Value
1 0 0
2 0 0
3 0 0
4 0 0
5 0 0
6 0.2 0.13706682376
7 0.2 0.128701242967
8 0.2 0.120846237528
9 0.3 0.170205968349
10 0.3 0.159817810656
Terminal Value 15.675 8.350480606784

Stock Price 9.067118690044

Cost of Capital 0.075

Year Cashflow Present Value
1 0 0
2 0 0
3 0 0
4 0 0
5 0 0
6 0.2 0.13706682376
7 0.2 0.128701242967
8 0.2 0.120846237528
9 0.3 0.170205968349
10 0.3 0.159817810656
Terminal Value 10.45 5.56698707119
Stock Price 6.283625154449
Step 1:

YTM on the 5 year coupon bond is the Yield on 5-year Government zero coupon bond plus appropriate yield spread

Yield on 5-year zero coupon bond= (F/P)^(1/n)-1

Where F= Face value (given as $2000), P= Price (given as $1,885.28) and n= period (5 years)

yield on zero coupon bond 0.011884228813263

0.011884 or 1.84%

Also given, rating of Zeta bond= BBB and yield spread on BBB bond= 1.65%

therefore, YTM on 5-year coupon bond 2.8%

Step 2:

Price per bond= $2,152.90

P/Y= 1 C/Y= 1 N= 5

I/Y= 2.8384
PMT 90
FV 2000

CPT PV =-2,152.897612

Step 3:

Total amount required given data= $20,000,000

Part (c ):

Number of bonds required to be issued= Total amount/Price per bond = 9289.795

Part (d):

If the rating is BB, yield spread= 2.50%

YTM on coupon bond 3.7%

Price per bond= $2,072.90

P/Y= 1, C/Y= 1

N= 5
 I/Y= 3.6884

PMT= 90

FV= 2000

CPT PV -2,072.90

Number of bonds to be issued 9648.3

Additional interest per year= Increase in number of bonds*face value per bond* coupon rate

32310
appropriate yield spread.
 US Government
Zero Coupon Tiger Risk Premium
Bond Maturity

Year 1Year 2Year 3 Year 4 Year 5 Year 6 Year

0 -1494.23 -1481.35 -1453.74 -1431.91 -1403.96 -1374.68
1 1500 0 0 0 0 0
2 1500 0 0 0 0
3 1500 0 0 0
4 1500 0 0
5 1500 0
6 1500
7
IRR=YTM 0.39% 0.63% 1.05% 1.17% 1.33% 1.46%

YTM
1.80%

1.60%

1.40%

1.20%

1.00%

0.80%

0.60%

0.40%

0.20%

0.00%
1 2 3 4 5 6 7
7 Year 7 Year Tiger YTM - 7 year US yeild
-1340.53 -1278.68
0 96
0 96
0 96
0 96
0 96
0 96
1500 1296
1.62% 6.79% 5.17%

6 7