Current Market Value of a Firm's Debt
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Corporation's balance sheet as of January 1, 2006 is as follows:
Long-term debt (bonds, at par) $10,000,000
Preferred stock 2,000,000
Common stock ($10 par) 10,000,000
Retained earnings 4,000,000
Total debt and equity $26,000,000
The bonds have a 4% semiannual coupon rate and a par value of $1,000. They mature on January 1, 2016. If the yield to maturity is 12%, what is the current market value of the firm's debt?
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Solution Summary
The solution calculates the current market value of the firm's debt.
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