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samanthakay samanthakay
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2 months ago
You want to buy a portfolio of financial securities consisting of three, $1,000 face value Government of Canada bonds and 500 preferred shares of Laurentide Resort Inc.
Laurentide Resort has a preferred share series trading on the Toronto Stock Exchange that pays a dividend of $0.56 semi-annually. The required rate of return on the stock is 12% compounded semi-annually.
The bonds have 4 years to maturity and an 8% coupon rate, with payments made semi-annually. Currently, the yield to maturity on these bonds is 10% compounded semi-annually.
a)What is the current intrinsic value of Laurentide Resort's preferred stock?
b)What is the current price of the 4-year coupon bonds?
c)What is the current value of your portfolio (i.e., bonds + preferred stock)?
d)It is now 2 years later. Market interest rates have dropped and the yield to maturity
on these bonds is now 8%. What is the value of the bonds at this time?
e)It is still 2 years later and the yield to maturity has dropped to 8%. Assume that
the price of Laurentide Resort Inc. preferred shares is now $8.50 per share. What is
the expected annual rate of return on your portfolio over the two years from
your investment?
Textbook 
Corporate Finance

Corporate Finance


Edition: 5th
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skysdalmtsskysdalmts
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2 months ago
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samanthakay Author
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I appreciate what you did here, answered it right Smiling Face with Open Mouth
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