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4. Two 20-year old bonds are identical in all respects except that one allows the issuer to call the bond in return for $1,000 cash at any time after five years while the other contains no call provisions. Will theyield to maturity on the two bonds differ? If so, which will be higher?
6. Information about three securities appears below.
Beginning-of-year price End-of-year Price Interest/dividend paid
Stock 1 $42.50 $46.47 $1.50
Stock 2 $1.25 $1.36 $0.00
Stock 3 $1,020 $1,048 $41.00
a. Assuming interest and dividends are paid annually, calculate the annual holding period return on each security.
b. During the year, management of Stock 2 spent $10 million, or $0.50 per share, repurchasing 7.7million of the company’s shares. How if at all, does this information affect calculation of the holding period return on Stock 2?
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