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Bond Valuation

Impact of credit ratings on cost of capital

First Tennessee Utility Company faces increasing needs for capital. Fortunately, it has an Aa2 credit rating. The corporate tax rate is 36 percent. First Tennessee's treasurer is trying to determine the corporation's current weighted average cost of capital in order to assess the profitability of capital budgeting projects. Hist

Present Value of Two Bonds

I am using Excel to solve this one with the PV function. I am thinking that there is no difference in the current market prices for these, but I am not sure how to explain why. I believe it is because they have coupons and the interest is not compounding. Thanks Assume that McDonald's and Burger King have similar $1,000

Bond

Explain why the relationship between a bond's yield and its coupon rate determines whether a bond will be price at par, at a premium or at a discount

Current yields on different bonds

1.Difference between the current yields on different bonds can be explained by their relative riskiness and different terms to maturity. Discuss. 2. Although the market price of long term bond is much more sensitive to changes in market interest rate than the market price of short term bonds, it is not obvious that an individ

invest in stocks or bonds that pay dividends

Discuss two to three reasons that people invest in stocks or bonds that pay dividends. On the other side of the coin list two to three reasons that people might not want to invest in companies or bonds that pay high dividends.

What are the firm's after tax cost of debt, cost of preferred stock, cost of a new issue of common stock, cost of retained earnings, and the weighted average cost of capital (up to the point when retained earnings are exhausted and after all retained earnings are exhausted)?

A firm has determined its optimal capital structure, which is comprised of the following sources and target market value proportions: Source of capital target market proportions Long term debt 30% Preferred stock 5 Common stock equity 65 Debt: The firm can sell a 20 yea

What would you pay for a bond...

What would you pay for a bond that pays an annual coupon of $35, has a face value of $1,000, matures in 7 years, and has a yield to maturity (YTM) of 8%?

Bond purchase decision

You are considering investing in a security that matures in 10 years with a par value of $1,000. During the first five years, the security has an 8 percent coupon with quarterly payments (i.e., you receive $20 a quarter for the first 20 quarters). During the remaining five years the security has a 10 percent coupon with quarterl

Bond valuation : key information

Why is it necessary to value a bond in terms of today's dollars? What is the impact of an increase in the prevailing interest rate on the valuation of a bond? What are some factors that affect the value of a corporate bond?

Investment in Bonds

Tom Jones is considering investing in a bond currently selling for $8785.07. The bond has 4 years to maturity, a $10,000 face value, and 8% coupon rate. The next annual interest payment is due 1 year from today. The appropriate discount rate for investments of similar risk is 10%. a) Calculate the intrinsic value of the bo

Homework help

To help strengthen my skills Weighted average cost of capital EXAMPLE OF SETUP FOR PROBLEM 18: (1) Cost (after-tax) (2) Weights (3) Weighted Cost Debt Kd Preferred stock

What is the current price of each bond? b) If the market interest rate suddenly rises to 14% per year (effective annual yield), what will be the price of each of these bonds? Calculate the price and duration of each bond if the market interest rate is 10% per annum (effective annual yield).

1) Consider three zero coupon $1000 face value bonds. Bond A matures 1 year from today. Bond B matures 5 years from today. Bond C matures 10 years from today. The current market interest rate is 11% per year (effective annual yield). a) What is the current price of each bond? b) If the market interest rate suddenly rises t

Corporate bonds, Earnings and Dividends

1. A 10-year Corporate bond is issued with a face value of $100,000, paying interest of $2,500 semi-annually. If market yields decrease shortly after the T-bond is issued, what happens to the bond's: a. price? b. coupon rate? c. yield to maturity? 2. Company ABC's earnings and dividends will grow at 0.5% monthly d

Suppose the December CBOT treasury bond futures contract has a quoted price of 80-07. If annual interest rates go up by 1 percentage point, what is the gain or loss on the futures contract (assume $1,000 par value)?

Suppose the December CBOT treasury bond futures contract has a quoted price of 80-07. If annual interest rates go up by 1 percentage point, what is the gain or loss on the futures contract (assume $1,000 par value)? A. Loss of $78, B. Gain of $78, C. Loss of $145, D. Gain of $145, or E. None of the above

Comparing Carrying Value and Market Value

Explain why there is a difference between the carrying value and the current market value of the long-term debt. Assume the company has decided to retire all of its long-term debt for cash, prepare the journal entry to record this transaction.

Bond price and yield

Company A issued bonds at face value at a yield to maturity of 7%. With 8 years left to maturity, the company has troubles and yield to maturity on the bonds is up to 15%. What happened to the bond price? If the company can meet its coupon payments but expected to go bankrupt when the bond matures, and investors expect to r

Financial Analysis

1 Calculate the NPV and the IRR for the following project and state whether or not you would accept the new project. Required rate of return = 9% Current prime rate = 11% Initial outflow = $75,000 Inflows = $25,000 for years 1-3

Bond prices and yields

5.17 bond sold for $1,065.12. the bond life is 9 years, yeild to maturity is 7 percent, what is the coupon rate? my answers 6.0 5.18 a. several years ago bonds were issued at face value yeild to maturity of 7 percent. with 8 years left until maturity company hits hard times. yield to maturity increases to 15%. what happ

Various external financing alternatives

Provide a DETAILED presentation of the characteristics of the various EXTERNAL financing alternatives, including the advantages and disadvantages of each. Include a recommendation of which alternative (or combination of alternatives) should be used to finance the investment. Thanks for getting me started!!

Pre-tax cost of debt

Wilson's Cabinet has bonds outstanding that mature in eight years, have a 6 percent coupon and pay interest annually. These bonds have a face value of $1,000 and a current market price of $1,020. What is the company's pre-tax cost of debt?

Finance

(See attached file for full problem description) --- 37. Amortizing Loan. Consider a 4-year amortizing loan. You borrow $1,000 initially, and repay it in four equal annual year-end payments. If the interest rate is 8 percent, show that the annual payment is $301.92 Fill in the following table, which shows how much of

Zero coupon bonds: Calculate issue price and interest expense for The Ledge

Zero coupon bonds pay no interest. The only cash investors receive is the lump-sum principle payment at maturity. On January 1, 2005 The Ledge Inc. issued $250 million of zero coupon bonds at a market yield rate of 12%. The bonds mature in 20 years. Required 1. What was the January 1, 2005 issue price of these zero cou

Bonds and yields

Q1. An 8 percent annual coupon, noncallable bond has ten years until it matures and a yield to maturity of 9.1 percent. What should be the price of a 10-year noncallable bond of equal risk which pays an 8 percent semiannual coupon? Assume both bonds have a par value of $1,000. Q2. Oakdale Furniture Inc. has a beta coefficie

Bonds/Percents/Stocks

Midland Oil has $1,000 par value bonds outstanding at 11 percent interest. The bonds will mature in 25 years. Compute the current price of the bonds if the present yield to maturity is: a) 6 percent b) 8 percent c) 12 percent Harrison Ford Aoto Company has a $1,000 par value bond outstanding that pays 11

Exam Study Question

A 1-year Corporate bond is issued with a face value of $100,000, paying interest of $2,500 semi-annually. If market yields decrease shortly after the T-bond is issued, what happens to the bond's: Price Coupon Rate Yield to Maturity