Finance Calculation Research Paper Example | Topics and Well Written Essays - 1750 words

Finance Calculation - Research Paper Example This is the factor for the argument and criticism of the Millionaires Factory by the Australian Shareholder's Association. If the market required rate of return is higher than the coupon rate of a bond, the price of the bond goes down. Because there are available bonds in the market, which give more interest than it does. Therefore, investors do not feel interest to invest on the bond, which offers lower interest rate than market's other bond. If the market required rate of return is lower than the coupon rate of a bond, the price of the bond goes up. Because there are available bonds in the market, which give lower interest than it does. So, investors feel interest to invest on the bond, which offers higher interest rate than market's other bond. .. Price of bond at 4% market interest = [80{1-1/ (1+ .04) ^5} .04] + 1000 / (1+.04) ^ 5 = $1177.62 Price of bond at 6% market interest = [80{1-1/ (1+ .06) ^5} .06] + 1000 / (1+.06) ^ 5 = $1084.20 Price of bond at 8% market interest = [80{1-1/ (1+ .08) ^5} .08] + 1000 / (1+.08) ^ 5 = $999.99 Price of bond at 10% market interest = [80{1-1/ (1+ .10) ^5} .10] + 1000 / (1+.10) ^ 5 = $684.66 Price of bond at 12% market interest = [80{1-1/ (1+ .12) ^5} .12] + 1000 / (1+.12) ^ 5 = $598.42 Price of bond at 14% market interest = [80{1-1/ (1+ .14) ^5} .14] + 1000 / (1+.14) ^ 5 = $553.20 Price of bond at 16% market interest = [80{1-1/ (1+ .16) ^5} .16] + 1000 / (1+.16) ^ 5 = $479.47 In while, 1 = 16% 2 = 14% 3 = 12% 4 = 10 % 5 = 08% 6 = 06% 7 = 04% 8 = 02%. Relationship between bond value and market required rates of return If the market required rate of return is higher than the coupon rate of a bond, the price of the bond goes down. Because there are available bonds in the market, which give more interest than it does. Therefore, investors do not feel interest to invest on the bond, which offers lower interest rate than market's other bond. If the market required rate of return is lower than the coupon rate of a bond, the price of the bond goes up. Because there are available bonds in the market, which give lower interest than it does. So, investors feel interest to invest on the bond, which offers higher interest rate than market's other bond. Answer to the question no.6 Part 1 We know, P = (D + p) / 1 + k In while, P = Opening share value D = Dividend p = Closing share value k = .12 g ( growth) = (3.5- 3.24) / 3.24 = 8.02% So, D = 3.5 + 3.5 8.02% = 3.78 So now,