For all the following multiple choice questions use the following information: ABC Co. issued a bond some time ago with a coupon rate of 10%. The market interest rate was then 11%. The bond is not due to mature for some time. The current market interest rate is 9%. (Your answer must be supported by a concise explanation.)
Explain yield to maturity.
1.You expect to retire in 15 years. Based on your projections, you believe you can afford to put away $1,000 per month over that time. How much will you have at retirement? After retirement you expect to live for another 20 years, if you already had $200,000 in your account when you started putting away the $1,000 per month,
Assume the firm's stock now sells for $30 per share. The company wants to raise $10 million by issuing 20-year, annual interest, $1,000 par value bonds. Each bond will have attached 60 warrants, each exercisable into 1 share of stock at an exercise price of $35. The firms straight bonds yield 10 percent. Each warrant is expe
Calculate the issue price of a $1,500,000 bond issue and preparing the journal entries of the issuance and first years interest payments using the effective interest method. The bonds are paid semiannually on Jun 30 and December 31. The first is a 12 year, 8 percent bond issue with a market interest rate of 12 percent. Th
David Ortiz Motors has a target capital structure of 40 percent debt and 60 percent equity. The yield to maturity on the company's outstanding bond is 9 percent, and the company tax rate is 40 percent. Ortiz's CFO has calculated the company's WACC as 9.96 percent. What is the company's cost of equity capital? See attached fil
1 Village Bank has $240 million of assets with a duration of 14 years and liabilities worth $210 million with a duration of 4 years. In the interest of hedging interest rate risk, Village Bank is contemplating a macrohedge with interest rate futures contracts now selling for 102-21. If the spot and futures interest rates move to
A company has a $1000 par value bond outstanding paying annual interest of 8%. The bond matures in 20 years. If the present yield to maturity for this bond is 10%, calculate the current price of the bond. Use annual analysis.
1. Would a zero-coupon bond ever sell for its face amount? Discuss. 2. What is the purpose of a bond sinking fund? Discuss.
(6-2) The values of outstanding bonds change whenever the going rate of interest changes. In general, short term interest rates are more volatile than long term interest rate. Therefore, short term bond prices are more sensitive to interest rate changes than are long term bond prices. Is this statement true or false? Explain.
Amortization. See attached file for full problem description.
1. Valuing a bond and valuing a stock: a. Bond valuation-what is the PV or the appropriate selling price of a 30 year bond which has a 10% coupon, paid annually, and has a 10 years till maturity, during a time when market interest rates are 5% b. Using the dividend discount model determine the appropriate market price for a
My company has a bond outstanding with a par value of $1000, an annual interest payment of $110, a market price of $1200 and a maturity in 10 years. Determine the following: a. Coupon rate b. Current yield c. Approximate yield to maturity
My company's bonds are currently selling for $1,157.75 per $1,000 par-value bond. The bonds have a 10% coupon rate and will mature in 10 years. What is the approximate yield to maturity of the bonds?
IBM wishes to raise $1 billion and is trying to decide between a domestic dollar bond issue and a Eurobond issue. The U.S. bond can be issued at a coupon of 6.75 percent, paid quarterly, with underwriting and other expenses totaling 0.95 percent of the issue size. The Eurobond would cost only 0.55 percent to issue but would bear
BDJ Co. wants to issue new 10-year bonds for some much-needed expansion projects. The company currently has 8 percent coupon bonds on the market that sell for $1,095, make semiannual payments, and mature in 10 years. What coupon rate should the company set on its new bonds if it wants them to sell at par?
If the required rate of return on both bonds is 12 percent compounded semi-annually, what is the current price of Bond M and Bond N. See attached file for full problem description.
1) Classifying liabilities as either current or long-term helps creditors assess: A) The extent of a firm's liabilities. B) The relative risk of a firm's liabilities. C) The degree of a firm's liabilities. D) The amount of a firm's liabilities. 2) Bond X and bond Y are both issued by the same company. Each of the b
Maharlika Corporation issued a 10-year $1.5 million 6% bond. Interest payments will be on a semi-annual basis. The effective rate at the point of sale, January 1, 2005, is 8% and Maharlika closes its accounting records on December 31 of each year. Instructions: Prepare the journal entries for: (a) to record the issuanc
All treasury securities has a yield to maturity of 7% so the yield curve is flat. If the yield to maturity on all Treasuries were to decline to 6%, which of the following bonds would have the largest percentage increase in price and why? a. 15 year zero coupon Treasury bond b. 12 year Treasury bond with 10% annual coupon c.
ABC Corporation is determining whether to support $150,000 of its permanent current assets with a bank note or a short-term bond. The firm's bank offers a two-year note where the firm will receive $150,000 and repay $175,000 at the end of two years. The firm has the option to renew the loan at market rates.l Alternatively, ABC c
A money manager is holding the following portfolio: Stock Amount Invested Beta 1 $300,000 0.6 2 300,000 1.0 3 500,000 1.4 4 500,000 1
You have been asked to value a 40-year bond, issued by Boeing, with the following features. The coupon rate for the first 20 years will be 6% of the face value of $1000. After 20 years, the coupon rate will increase to 7% for the remaining 20 years. Estimate the value of this bond, if Boeing is rated AA. (AA-rated bonds are trad
You are comparing the prices of a bonds issued by two corporations. NV Technologies has a 8%, 15- year bond outstanding, trading at par. GEV Technologies has the same bond rating as NV Technologies and has a 7.5% bond, trading at 5% below par. What is the maturity of GEV's outstanding bond?
Rica purchased for $4,500 a $5,000 bond when it was issued two years ago. Rica amortized $250 of the original issue discount and then sold the bond for $4,875. Which of the following statements is correct? a. Rica has $125 of long-term capital gain. b. Rica has $250 of long-term capital gain. c. Rica has $3
1. Bond valuation- An investor has two bonds in his portfolio that both have a face value of $1000 and pay a 10 percent annual coupon. Bond L matures in 15 years, while Bond S matures in 1 year. a. What will the value of each of bond be if the going interest rate is 5 percent, 8 percent, and 12 percent? Assume that there is
What is the price of a 7% coupon bond with 5 years remaining to maturity to the current market required return (e.g., yield) is 8%? What is the price of the same bond if the current market required return increases to 10%?
See attached file for full problem description. Bonds issued by the Crane Optical Company have a par value of $1, 000 which is also the amount of principal to be paid at maturity. The bonds are currently selling for $850. They have 10 years remaining to maturity. The annual interest payment is 9 percent ($90). Compute the app
See attached file for full problem description. Go to Table 10-1 (attached) which is based on bonds paying 10 percent interest for 20 years. Assume interest rates in the market (yield to maturity) decline from 11 percent to 8 percent: a.What is the bond price at 11 percent? b. What is the bond price at 8 percent? c. What
Delta Corporation has $20 mil bond obligation outstanding, which is considering refunding. Through the bonds were initially issued at 13% the interest rates on similar issues have declined to 11.5%. The bonds were originally issued for 20 years and have 16 years remaining. The new issue would be for 16 years. There