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
BrainMass Solutions Available for Instant Download
What is the "zero coupon bond"? How it is issued, valued in the market, and which investor should consider a zero coupon bond?
(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
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
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
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
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
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?
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?
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
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
(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
By how much will a bond increase in price over the next year if it currently sells for $925, has five years until maturity, and an annual coupon rate of 7%?
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.)
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?
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.
1. You are called in as a financial analyst to appraise the bonds of Smith's Clothing Store. The $1000 par valuebonds have a quoted annual intgerest rate of 13 percent, which is paid semiannually. The yield to maturity on the bonds is 10 percent annual interest. There are 25 years to maturity. a. Compute the price of the b
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
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
A. Calculate the issue price of the bonds. b. Prepare the amortization table for 2008, assuming that amortization is recorded on interest payment dates.
On January 1, 2008, Langly Co. issued ten-year bonds ith a face value of $1,000,000 and a stated interest rate of 10%, payable semiannually on June 30 and December 31. The bonds were sold to yield 12%. Table value are: Present value of 1 for 10 periods at 10%...................0.386 Present value of 1 for 10 periods
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
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
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
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
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
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
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
The jackson company is considering the purchase of a new machine that is expected to reduce cash outflows. The cost of this machine is $30,000.
The jackson company is considering the purchase of a new machine that is expected to reduce cash outflows. The cost of this machine is $30,000. The annual reduction in cash outflows is as follows: Year amount 1 5000 2 8000 3 12000 4 14000 if the cost of capital is 10%, please calculate the followin
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