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Bond Valuation

Yield Curve and Interest Rates

Explain the yield curve and how it reacts to changes in interest rates, and can you explain why long-term (30-year) bonds generally trade at a higher yield than short-term maturities. Apply the forces of inflation, monetary and fiscal policy, trade deficit and foreign influences in your explanation

Zero Coupon Bond

What is the "zero coupon bond"? How it is issued, valued in the market, and which investor should consider a zero coupon bond?

Corporate Finance (Problem Set)

(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? (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 a rate

Junk Bond Market Implications

The development of the new issue junk bond market had important implications for capital structure choice. The existence of a viable junk bond market means that firms can comfortably maintain higher degrees of leverage than they could prior to the development of this market. Do you agree or disagree? Give examples and ju

Comparing borrowing costs - A2

Stephens Security has two financing alternatives (1) A publicly placed $50 million bond issue. Issuance costs are $1 million, the bond has a 9% coupon paid semiannually, and the bond has a 20-year life. (2) A $50 million private placement with a large pension fund. Issuance costs are $500,000, the bond has a 9.25% annual coup

Bonds & budgets: Interest payable

1. Six years ago Hill City issued $10 million of 6% term bonds, due 30 years from the date of issue. Interest on the bonds is payable semi-annually on January 1 and July 1. Hill City has a September 30 fiscal year end. The amount of interest payable that would be included on the balance sheet for the debt service fund of Hill Ci

Liquidity Premium and Yield

a) A corporation is planning to sell its 90-day commercial paper to investors offering an 8.4% yield. If the three-month T-bill's annualized rate is 7%, the default risk premium is estimated to be 0.6% and there is a 0.4% tax adjustment, what is the appropriate liquidity premium? b) If due to unexpected changes in the economy

Why Mutual Funds are Popular

What is the function of a mutual fund? Why are mutual funds popular among investors? How does a money market mutual fund differ from a stock or bond mutual funds?

Interest Rates and Maturity

Suppose the U.S. treasury offers to sell you a bond for $747.25. No payments will be made until the bond matures 5 years from now, at which time it will be redeemed for $1000. What interest rate would you earn if you bought this bond at the offer price?

Discussing Issue Price of Bond

Stone, Inc. issued bonds with a maturity amount of $200,000 and a maturity ten years from date of issue. If the bonds were issued at a premium, this indicates that a. the effective yield or market rate of interest exceeded the stated (nominal) rate. b. the nominal rate of interest exceeded the market rate. c. the market

Computing and Journalizing Bond Premiums and Discounts

The team and I already have the answers for both of these problems in question. We have agreed to the answers and are happy with them. I would like a professional to run through the problems and give "correct answers" so I may double check the teams work. If this is possible and can be done, I thank you. My main concern is with

Lower Borrowing Cost.

(Comparing borrowing costs) Stephen Security has two financing alternative: (1) A publicly placed $50 million bond issues. Issuance costs are $1 million, the bond has a 9% coupon paid semiannually, and the bond has a 20-year life. (2) A $50 million private placement with a large pension fund. Issuance costs are $500,00, the bond

Computing the After-Tax Weighted-Average Cost of Debt

See the attached file. Calculating the Cost of Debt Ying Import has several bond issues outstanding, each making semiannual interest payments. The bonds are listed in the following table. If the corporate tax rate is 31 percent, what is the aftertax cost of Ying's debt? (Round your answer to 2 decimal places, e.g. 32.16.)

Bonds and Their Valuation

Yield to maturity: A firm's bonds have a maturity of 10 years with a $1,000 face value, and a 8 percent semiannual coupon, are callable in 5 years at $1,050, and currently sell at a price of $ 1,100. What are their yield to maturity and their yield to call? What return should investors expect to earn on this bond?

Please assist with the following - face value question

1. What is the price per $100 face value of a two-year, zero-coupon, risk-free bond? $79.63 $98.85 $79.36 $89.85 0.0605 2. What is the price per $100 face value of a four-year, zero-coupon, risk-free bond? $79.63 $98.85 $79.36 $89.

CAPM

Using the PC Quote Web Page find the value of beta for Wal-Mart. a. What is the estimated beta coefficient of Wal-MArt? What does this beta mean in terms of your choice to include Wal-MArt in your overall portfolio? b. Given the beta of Wal-MArt, the present yield to maturity on U.S. government bonds maturing in one yea

Interest-rate risk

Philadelphia Electric bonds trading New York Stock Exchange. Suppose PhilEl's bonds identical coupon rates 9.125% issue matures 1 year, 7 years, 15 years. Assume a coupon payment made yesterday. A. If yield maturity of all three bonds 8%, what is the fair price of each bond? B. Suppose that the yield to maturity for all o

What is the arbitrage profit? Which of the following is NOT true? All of the following are types of traders in futures, forward, and options markets EXCEPT: What is the futures price above which there will be a margin call? What hedge ratio should be used when hedging a one month exposure to the price of commodity A? What position should the fund manager take to hedge exposure to the market over the next two months?

Question 1: The price of gold is currently $700 per ounce. Forward contracts are available to buy or sell gold at $900 for delivery in one year. An arbitrageur can borrow money at 10% per annum. What is the arbitrage profit? Question 2: A trader enters into a one-year short forward contract to sell an asset for $60 when the

Bonds with warrants

ACME is setting the terms on a new issue of bonds with warrants. The bonds will have a 30-year maturity and annual interest payments. Each bond will come with 20 year warrants that give the holder the right to purchase one share of stock per warrant. The investment bankers estimate that each warrant will have a value of $10.0

Retirement of Bonds for Marin Co.

The December 31, 2004 balance sheet of Marin Co. included the following items: 7.5% bonds payable due December 31, 2012 $800,000 Unamortized discount on bonds payable 32,000 The bonds were issued on December 31, 2002 at 95, with interest payable on June 30 and December 31. (Use straight-line a

Week 5 final questions

Finance for Business (FIN/370) MULTIPLE CHOICE Student Name: .................................... MULTIPLE CHOICE/TRUE OF FALSE Highlight answers in Blue attached document has some completed please check for correct choice 1. The goal of the firm should be the maximization of profit. (A) Tr

Bond Risk Calculations

Show calculations On January 1, 1995, Debtor Corporation issued 10,000 five -year bonds with a face value of $1,000 and an annual coupon of 4 percent. Bonds of similar risk were yielding eight percent p.a. in the market at the time. a) What did the firm receive for each bond issued? At the end of 1995, the market was st

Interest Rate Risk: Philadelphia Electric

Philadelphia Electric has many bonds trading on the New York Stock Exchange. Suppose the company's bonds have identical coupon rates of 9.125%, but that one issue matures in 1 year, one in 7 years, and the third in 15 years. Assume that a coupon payment was made yesterday. a. If the yield to maturity for all three bonds is

Tax Consequences: Sale of a Bond Example Problem

In 2007, Mr Lewis paid $40,000 for a corporation bond with a $50,000 stated redemption value. Based on the bond's yield to maturity, amortization of the $10,000 discount was $695 in 2007. Mr. Lewis sold the bond for $42,000 in 2008. What are his tax consequences in each of these years, if he bought the bond in the public market

Bonds

On March 1, 2005, ABC Company sold its 5 year, $1,000 face value, 9% bonds dated March 1, 2005 at an effective annual interest rate (yield)of 11%. Interest is payable semiannually, and the first interest payment date is Sept 1, 2005. ABC uses the effective interest method of amortization. Bond issue costs were incurred in prepar

Calculating a Bond's Default Risk Premium: Example Problem

The real risk-free rate, r*, is 2.5%. Inflation is expected to average 2.8% a year for the next 4 years, after which time inflation is expected to average 3.75% a year. Assume that there is no maturity risk premium. An 8-year corporate bond has a yield of 8.3%, which includes a liquidity premium of 0.75%. What is its default ris