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Bond Valuation

Demand, Supply, Price, Business Cycle, Interest Rates and Yield

1. When the demand for bonds _________ or the supply of bonds _________, interest rate rise. A. decreases; increases B. decreases; decreases C. increases; decreases D. increases; increases 2. When the price of a bond is _________ the equilibrium price, there is an excess demand for bonds and the price wil

Dividend Yield & Capital Gains Yield for an Investor in the Club

The club auto parts company has recently organized. It is expected to experience no growth for the next 2 years as it identifies its market and acquires its inventory. However, club will grow at an annual rate of 5 percent in the third year and beginning with the fourth year, should attain a 10 percent growth rate which will sus

Benson Incorporated: Calculate value of the bond

Benson Incorporated has bonds with the following features: Par value of $1,000, maturity of 12 years, and a coupon rate of 8%. The yield to maturity is 6%. Please determine if the bond sells for a premium, par, or discount and explain your answer. Calculate the value of the bond if interest is paid on an annual basis versus a se

Calculate the Value of a Bond

Please help with the following problem. Benson Incorporated has bonds with the following features: Par value of $1,000, maturity of 12 years, and a coupon rate of 8%. The yield to maturity is 10%. Please determine if the bond sells for a premium, par, or discount and explain your answer. Calculate the value of the bond if

Explanation of Finance Questions: Bonds

Why do companies issue bonds? Would you rather buy a bond at a discount or a premium rate? Explain why or why not. What is the determining factor of whether a bond is sold at a discount, face, or premium?

Bond Valuation, Dividend Discount Model, Required Return, CAPM

A1. (Bond valuation) A $1,000 face value bond has a remaining maturity of 10 years and a required return of 9%. The bond's coupon rate is 7.4%. What is the fair value of this bond? A10. (Dividend discount model) Assume RHM is expected to pay a total cash dividend of $5.60 next year and its dividends are expected to grow at

Strip bonds: payment streams

You are a financial engineer for a major bank who has created a strip bond by selling the coupon payments of an 8% coupon bond with a 9.5% yield to maturity separately from the par value payment at maturity (coupon payments are made semi-annually). If there are 12 years left to maturity and the par value is $1000, what is th

Describing the Features of the Bond

Texas Foods has a 6 percent bond issue outstanding that pays $30 in interest every March and September. The bonds are investment grade and sell at par. The bonds are callable at a price equal to the present value of all future interest and principal payments discounted at a rate equal to the comparable Treasury rate plus 0.50 pe

Various Bond Questions

A 6-year, $1,000 face value bond issued by Taylor Tools pays interest semiannually on February 1 and August 1. Assume today is October 1. What will the difference, if any, be between this bond's clean and dirty prices today? Question 1 options: 1) five month's interest 2) two month's interest 3) no difference 4) one

Entries for Bond Transactions-Effective-Interest

Celine Dion Company issued $600,000 of 10% 20-year bonds on January 1, 2008, at 102. Interest is payable semiannually on July 1 and January 1. Dion Company uses the straight line method of amortization for bond premium or discount. Prepare the journal entries to record the following. (a) The issuance of the bonds. (b) The

Cost of Equity and Appropriate Discount Factor

Please view attached file for clarity of the table. Question: What is the project's cost of equity? What is the appropriate discount factor to use for evaluating the refrigerator project? The following assumptions are used to determine the cost of capital. Historically, the company tried to maintain a debt to equity ratio

Bond prices and maturity time

Bond X is a premium bond making annual payments. The bond pays an 8 percent coupon, has a YTM of 6 percent, and has 13 years to maturity. Bond Y is a discount bond making annual payments. This bond pays a 6 percent coupon, has a YTM of 8 percent, and also has 13 years to maturity. If interest rates remain unchanged, what do

Current bond price, YTM, coupon rate, real rate of interest

Staind, Inc. has 7.5 percent coupons and bonds on the market that have 10 years left to maturity. The bonds make annual payments. If the YTM on these bonds is 8.75 percent, what is the current bond price? Ackerman Co. has 9 percent coupon bonds on the market with nine years left to maturity. The bonds make annual payments. If

Stock and Bond Transactions

See attached file for clarity of the tables included. Please provide step-by-step solutions. Problem One: The following transactions occurred during the year. Indicate how each transaction affected the number of shares outstanding, the balances in Common Stock and Additional-Paid-in Capital. Assume a beginning balance of

Yield of a Bond that Trades at a Discount

Fin 534 Chapter 8 Problem 9 Explain why the yield of a bond that trades at a discount exceeds the bond's coupon rate? Chapter 8 Problem 24 Assume there are four default-free bonds with the following prices and future cash flows:

Corporate finance

Brigit Hall has decided to establish a university endowment fund at T.T. Penguin's former university, using an $8 million donation from Penguin. The fund will be used to construct a new building in five years, which is expected to cost $10 million at that time. In the interim, Penguin would like to generate end-of-year scholarsh

Accounting

Prepare journal entries to record the following transactions related to long term bonds of quirk Co. On April 1,2009 Quirk issued $500,000, 9% bonds for 537,868 including accrued interest. Interest payable annually on January 1 and the bonds mature on January 1, 2019. On July 1, 2011 Quirk retired $150.000 of the bonds at 102

Effects of borrowing by Treasury

Suppose that, due to an unexpected decline in federal income tax collections, the Treasury is compelled to borrow an extra $40 billion to cover planned expenditures in the current government budget. What would be some of the possible effects of this additional borrowing on the financial markets and the economy?

Yield to Maturity and Risk Free Rate

See the attachment. Problem One: (a). The yield to maturity on ACL bonds maturing in 2008 is 8.75 percent. The yield to maturity on a similar maturity U.S. Government Treasury bond in 7.06 percent and the yield on Treasury bills is 6.51 percent. What is the default risk premium on the ACL bond? (b) AKA is considering expan

Oligopoly: Price cut and kinked demand curve

What is the cost to a firm in an oligopoly that fails to take rivals' actions into account? Suppose the firm operates along demand curve D1, shown below, as if no firms will follow its lead in price cuts or price rises. In fact, however, other firms do follow the price cuts, and the true demand curve below price P1 lies below D1

Issuance of new bonds

If the Treasury announces plans to issue $50B of new bonds. Assuming the announcement was not expected, what effect, other things held constant, would that have on bond prices and interest rates? Would prices and interest rates both decline? Would prices and interest rates both rise? Would prices rise and interest ra

Bonds: current market price, current yield, YTM, when will it be called

1. Determine the current market prices of the following $1,000 bonds if the comparable rate is 10% and answer the following questions. XY 5.25%, (interest paid annually) for 20 years. AB 14 %, (interest paid annually) for 20 years. a. Which bond has a current yield that exceeds the yield to maturity? b. Which bond m

Accounts, Adjusting Entries, Balance Sheet, Inventory, Stockbond

Problem One: For each of the following accounts, indicate whether the account normally possesses a debit (DR) or a credit (CR) balance. 1. Accumulated depreciation 2. Rent expense 3. Cash 4. Sales 5. Notes payable 6. Paid-in capital 7. Prepaid rent 8. Cost of goods sold 9. Depreciation expense 10. Merchan

Interest rate risk: GMAC bonds

A quick look at bond quotes will tell you that GMAC has many different issues of bonds oustanding. Suppose the four of them have identical coupon rates of 7.25% but mature on four different dates. One matures in 2 years, one in 5 years, one in 10 years, and the last in 20 years. Assume that they all made coupon payments yesterda

Finance Problem Sets

(1) A $1000 face value bond has a remaining maturity of 8 years and a required return of 11%. The bond's coupon rate is 6%. What is the fair value of the bond? (2) Assume ABC is expected to pay a total cash dividend of $7.50 next year and its dividends are expected to grow at a rate of 5% per year forever. Assuming annual divid