FIN 305 WEEK 7 FINAL PART A
COMPREHENSIVE STUDY GUIDE 2026 FULL
QUESTIONS AND SOLUTIONS GRADED A+
◍ Ninja Co. issued 14-year bonds a year ago at a coupon rate of 8.6 percent.
The bonds make semiannual payments. If the YTM on these bonds is 6.9
percent, what is the current bond price?.
Answer: Nper = 13*2 = 26 (indicates the remaining maturity period of
bonds)Rate = 6.9%/2 (indicates semi-annual YTM)PMT = 10008.6%1/2 =
43 (indicates the amount of semi-annual interest payment)FV = 1000
(indicates the face value of bonds)PV = ? (indicates the current price of the
bond)Current Price of the Bond = PV(Rate,Nper,PMT,FV) =
PV(6.9%/2,26,43,1000) = 1144.38Answer is 1144.38.
◍ b. Trace the dividend and capital gains component of the required return for
this stock over time..
Answer: DY0 = 1.25*1.2/16.01 = .094; CGY0 = .16 - .094 = .066P1 =
16.01*1.066 = 17.07DY1 = 1.25*1.2^2/17.07 = .1241; CGY1 = .16 - .1241
= .0359
◍ Constant Growth Formula for Value of Operations.
Answer: To be used if free cash flows are expected to grow at a constant rate
of gL from time 1 and afterwards (and gL < WACC). This is the present
value of all free cashflows from time 1 through infinity, when discounted at
the WACC.
◍ Bond J is a 4 percent coupon bond. Bond K is a 10 percent coupon bond.
Both bonds have 17 years to maturity, make semiannual payments, and have
a YTM of 7 percent.If interest rates suddenly rise by 2 percent, what is the
percentage price change of these bonds? What if they fall by 2%?.
Answer: J: FV=1000, N=34, PMT=20, I/Y=3.5, PV=?--->704.49Rise by
, 2%FV=1000, N=34, PMT=20, I/Y=4.5, PV=?-->568.83704.49 - 568.83 =
135.66/704.49= -19.26% changeFall by 2%FV=1000, N=34, PMT=20,
I/Y=2.5, PV=?--->886.38886.38 - 704.49 = 181.89/704.49 = 25.82%
changeK: FV=1000, N=34, PMT=50, I/Y=3.5, PV=?--->1295.51Rise by
2%FV=1000, N=34, PMT=50, I/Y=4.5, PV=?--->1086.231295.51 - 1086.23
= 209.28/1295.51= -16.15% changeFall by 2%FV=1000, N=34, PMT = 50,
I/Y= 2.5, PV=?--->1568.091568.09 - 1295.51 = 272.58/1295.51 = 21.04%
Change
◍ Buy stock today will receive D=2, P=100r=.1.
Answer: Po= 102/1.1=92.73
◍ Equations.
Answer: BVo=(c/r)(1-1/(1+r)^t) + Face Value/(1+r)^tytmt=Cyt +
CGytCyt=Ct/BVtCGy=((BVt-1)/(BVt)) -1
◍ A0*/S0.
Answer: Capital intensity ratio
◍ Future Value of an Annuity Formulas.
Answer: FVA = pmt * ( (1+r)^n)-1 / r=FV(rate, nper, pmt, -pv)Solve for FV
◍ Horizon Value.
Answer: The horizon value is the value of all free cash flows from year 4
and beyond, discounted back to year 3.
◍ Treasury bills are currently paying 8 percent and the inflation rate is 3.50
percent.What is the approximate real rate of interest?What is exact real rate
of interest?.
Answer: 4.5%=approx8-3.5=4.54.35%=exact1.08/1.035=.04347
◍ Bond P is a premium bond with a 9 percent coupon. Bond D is a 4 percent
coupon bond currently selling at a discount. Both bonds make annual
payments, have a YTM of 6 percent, and have four years to maturity1. What
is the current yield for bond P and bond D?2. If interest rates remain
unchanged, what is the expected capital gains yield over the next year for
bond P and bond D?.
, Answer: Bond P:N=4, I/Y=6, PMT=90, FV=1000, PV=?--->1103.951 year
later (1 period closer to maturity)N=3, I/Y=6, PMT=90, FV=1000,
PV=?--->1080.19Change in price=$23.76Current yield=8.15%
(90/1103.95)Cap Gain/Loss= - 2.15% (23.76/1103.95)Total Return =
6%Bond D:N=4, I/Y=6, PMT=40, FV=1000, PV=?--->930.701 year
later:N=3, I/Y=6, PMT=40, FV=1000, PV=?--->946.54Change in
price=$15.8393Current Yield=4.3%Cap Gain/Loss=1.7%Total
Return=2.6%
◍ 4 Ways to Find Future Values.
Answer: 1. Step-by-step using timeline2. Solve equation with a calculator3.
Financial calculator4. Excel function FV
◍ Convertible bond.
Answer: Can be swapped for a fixed number of shares of stock at anytime
before maturity at the holders option. Very common, but decreasing lately.
◍ L0*/S0.
Answer: Spontaneous liabilities ratio
◍ 2. Consider a company that most recently paid a dividend of $1.25. For the
next 3 years, they have pledged to increase the dividend by 20% each year.
After that, they've pledged to level out at a permanent growth rate in
dividends of 4%..
Answer: a. If you require a 16% return, what are you willing to pay for the
stock today?P0 = 1.251.2/1.16 + 1.251.2^2/1.16^2 + 1.251.2^3/1.16^3 +
1.251.2^31.04/((.16 - .04)1.16^3) = 16.01
◍ M.
Answer: Profit margin (net income / sales)
◍ Nominal Rate (INOM).
Answer: Stated in contracts and quoted by banks and brokers, not used in
calculations or shown on timelines. Periods per year (M) must be
given.Examples: 8% quarterly 8% daily interest (365 days)
◍ 6c. What is bond value 7 years from now?.
COMPREHENSIVE STUDY GUIDE 2026 FULL
QUESTIONS AND SOLUTIONS GRADED A+
◍ Ninja Co. issued 14-year bonds a year ago at a coupon rate of 8.6 percent.
The bonds make semiannual payments. If the YTM on these bonds is 6.9
percent, what is the current bond price?.
Answer: Nper = 13*2 = 26 (indicates the remaining maturity period of
bonds)Rate = 6.9%/2 (indicates semi-annual YTM)PMT = 10008.6%1/2 =
43 (indicates the amount of semi-annual interest payment)FV = 1000
(indicates the face value of bonds)PV = ? (indicates the current price of the
bond)Current Price of the Bond = PV(Rate,Nper,PMT,FV) =
PV(6.9%/2,26,43,1000) = 1144.38Answer is 1144.38.
◍ b. Trace the dividend and capital gains component of the required return for
this stock over time..
Answer: DY0 = 1.25*1.2/16.01 = .094; CGY0 = .16 - .094 = .066P1 =
16.01*1.066 = 17.07DY1 = 1.25*1.2^2/17.07 = .1241; CGY1 = .16 - .1241
= .0359
◍ Constant Growth Formula for Value of Operations.
Answer: To be used if free cash flows are expected to grow at a constant rate
of gL from time 1 and afterwards (and gL < WACC). This is the present
value of all free cashflows from time 1 through infinity, when discounted at
the WACC.
◍ Bond J is a 4 percent coupon bond. Bond K is a 10 percent coupon bond.
Both bonds have 17 years to maturity, make semiannual payments, and have
a YTM of 7 percent.If interest rates suddenly rise by 2 percent, what is the
percentage price change of these bonds? What if they fall by 2%?.
Answer: J: FV=1000, N=34, PMT=20, I/Y=3.5, PV=?--->704.49Rise by
, 2%FV=1000, N=34, PMT=20, I/Y=4.5, PV=?-->568.83704.49 - 568.83 =
135.66/704.49= -19.26% changeFall by 2%FV=1000, N=34, PMT=20,
I/Y=2.5, PV=?--->886.38886.38 - 704.49 = 181.89/704.49 = 25.82%
changeK: FV=1000, N=34, PMT=50, I/Y=3.5, PV=?--->1295.51Rise by
2%FV=1000, N=34, PMT=50, I/Y=4.5, PV=?--->1086.231295.51 - 1086.23
= 209.28/1295.51= -16.15% changeFall by 2%FV=1000, N=34, PMT = 50,
I/Y= 2.5, PV=?--->1568.091568.09 - 1295.51 = 272.58/1295.51 = 21.04%
Change
◍ Buy stock today will receive D=2, P=100r=.1.
Answer: Po= 102/1.1=92.73
◍ Equations.
Answer: BVo=(c/r)(1-1/(1+r)^t) + Face Value/(1+r)^tytmt=Cyt +
CGytCyt=Ct/BVtCGy=((BVt-1)/(BVt)) -1
◍ A0*/S0.
Answer: Capital intensity ratio
◍ Future Value of an Annuity Formulas.
Answer: FVA = pmt * ( (1+r)^n)-1 / r=FV(rate, nper, pmt, -pv)Solve for FV
◍ Horizon Value.
Answer: The horizon value is the value of all free cash flows from year 4
and beyond, discounted back to year 3.
◍ Treasury bills are currently paying 8 percent and the inflation rate is 3.50
percent.What is the approximate real rate of interest?What is exact real rate
of interest?.
Answer: 4.5%=approx8-3.5=4.54.35%=exact1.08/1.035=.04347
◍ Bond P is a premium bond with a 9 percent coupon. Bond D is a 4 percent
coupon bond currently selling at a discount. Both bonds make annual
payments, have a YTM of 6 percent, and have four years to maturity1. What
is the current yield for bond P and bond D?2. If interest rates remain
unchanged, what is the expected capital gains yield over the next year for
bond P and bond D?.
, Answer: Bond P:N=4, I/Y=6, PMT=90, FV=1000, PV=?--->1103.951 year
later (1 period closer to maturity)N=3, I/Y=6, PMT=90, FV=1000,
PV=?--->1080.19Change in price=$23.76Current yield=8.15%
(90/1103.95)Cap Gain/Loss= - 2.15% (23.76/1103.95)Total Return =
6%Bond D:N=4, I/Y=6, PMT=40, FV=1000, PV=?--->930.701 year
later:N=3, I/Y=6, PMT=40, FV=1000, PV=?--->946.54Change in
price=$15.8393Current Yield=4.3%Cap Gain/Loss=1.7%Total
Return=2.6%
◍ 4 Ways to Find Future Values.
Answer: 1. Step-by-step using timeline2. Solve equation with a calculator3.
Financial calculator4. Excel function FV
◍ Convertible bond.
Answer: Can be swapped for a fixed number of shares of stock at anytime
before maturity at the holders option. Very common, but decreasing lately.
◍ L0*/S0.
Answer: Spontaneous liabilities ratio
◍ 2. Consider a company that most recently paid a dividend of $1.25. For the
next 3 years, they have pledged to increase the dividend by 20% each year.
After that, they've pledged to level out at a permanent growth rate in
dividends of 4%..
Answer: a. If you require a 16% return, what are you willing to pay for the
stock today?P0 = 1.251.2/1.16 + 1.251.2^2/1.16^2 + 1.251.2^3/1.16^3 +
1.251.2^31.04/((.16 - .04)1.16^3) = 16.01
◍ M.
Answer: Profit margin (net income / sales)
◍ Nominal Rate (INOM).
Answer: Stated in contracts and quoted by banks and brokers, not used in
calculations or shown on timelines. Periods per year (M) must be
given.Examples: 8% quarterly 8% daily interest (365 days)
◍ 6c. What is bond value 7 years from now?.
