Risk and Return Problem Sets

All of these questions have to be answered in Microsoft Excel. The formulas have to be placed in and answered just like you would do if you were in the class. Complete the following problem sets from Chapter 7, Chapter 8, and Chapter 9 in Microsoft® Excel®:

7-21 Compute Bond Price Compute the price of a 3.8 percent coupon bond with 15 years left to maturity and a market interest rate of 6.8 percent. (Assume interest payments are semiannual.) Is this a discount or premium bond?

7-27 Yield to Maturity A 5.65 percent coupon bond with 18 years left to maturity is offered for sale at $1,035.25. What yield to maturity is the bond offering? (Assume interest payments are semiannual.)

8-19 Value a Constant Growth Stock Financial analysts forecast Safeco Corp.’s (SAF) growth rate for the future to be 8 percent. Safeco’s recent dividend was $0.88. What is the value of Safeco stock when the required return is 12 percent?

8-21 Expected Return Ecolap Inc. (ECL) recently paid a $0.46 dividend. The dividend is expected to grow at a 14.5 percent rate. At a current stock price of $44.12, what is the return shareholders are expecting?

9-33 Risk, Return, and Their Relationship Consider the following annual returns of Estee Lauder and Lowe’s Companies

Estee Lauder                      Lowe’s Companies

year 1                            23.4%                                   -6.0%

year2                             – 26.0                                     16.1

year 3                               17.6                                     4.2

year 4                            49.9                                   48.0

year 5                               – 16.8                                    – 19.0

Compute each stock’s average return, standard deviation, and coefficient of variation. Which stock appears better? Why?

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