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# Bond Valuation

### 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

### Financial Management questions (present value of a bond, price of a bond, value of an investment, and more...)

************ 1. A 20-year bond pays 12% on a face value of \$1,000. If similar bonds are currently yielding 9%, What is the present value of the bond? (Use annual analysis, based on 20 yrs-- and a decrease in the inflation premium as shown.) Answer over \$1,000 under \$1,000 over \$1,200 \$1,000 2. If the inflat

### Finance: Optimal capital structure, yield to maturity, bonds, market risk, call provision

311. A taxpaying, levered firm's optimal capital structure: is 100 percent equity financing. consists of equal amounts of debt and equity financing. is the mixture of debt and equity financing that minimizes the firm's aftertax cost of debt. is the mixture of debt and equity financing that

### 4 Finance problems......annual dollar coupon amount, purchasing treasury notes, and more...

1. Government Note Rate: 2.875 Maturity: Nov10n Bid: 99:02 Asked: 99.03 CHG: -2 ASK YLD: 3.55 A. What annual dollar coupon amount will investors receive if face value of the Treasure note is \$1,000? B. What price would you pay in dollars to purchase this Treasure note? 2. T-bill Maturity: June 16, 2

### Applying approximate yield to maturity

Question to work: a. Bonds issued by West Motel Chain have a par value of \$1000, are selling for #1,100, and have 20 years remaining to maturity. The annual interest payment is 13.5% (\$135). Compute the approximate yield to maturity. Use formula as follows: Approximate yield to maturity (Y') = Annual interest payment

### Bonds / Ytm/ HPR

On November 1, 2009 you purchased two callable bonds with 6 years remaining to maturity at the time of purchase and 3 years to remaining to call. The coupon interest rate of both bonds is 10% and par value is \$1,000. The first bond pays annual coupon and the second - semi-annual. At the time you purchased the bond, the annual-co

### Journalize bond interest; amortize bond discount

Company Balance Sheet as of December 31, 2009. Current liabilities Bond interest payable \$168,000 Long-term liabilities Bonds payable, 7% due January 1, 2020 \$2,400,000 Less: Discount on bonds payable

### 1. A large grocery chain is reevaluating its bonds since it is planning to issue a new bond in the current market. The firm's outstanding bond issue has 6 years remaining until maturity. The bonds were issued with a 6 percent coupon rate (paid semiannually) and a par value of \$1,000. Because of increased risk the required rate is 10 percent. What is the current value of these bonds? 2. In 2004, Venus Fly Co. issued a \$75 par value preferred stock which pays \$5.25 annual dividend. Due to changes in the overall economy and in the company's financial condition investors are now requiring a 5 percent return. What price would you be willing to pay for a share of the preferred if you receive your first dividend one year from now?

1. A large grocery chain is reevaluating its bonds since it is planning to issue a new bond in the current market. The firm's outstanding bond issue has 6 years remaining until maturity. The bonds were issued with a 6 percent coupon rate (paid semiannually) and a par value of \$1,000. Because of increased risk the required rat

### 1. A firm wants to expand its business and to do so it must issue new capital (debt, common stock, or preferred stock) since its internal cash flow is not sufficient to pay for the expansion. The firm wants to issue the cheapest type of capital. Given the following information, what type of capital will the firm prefer to issue first, second, and third? 11% Before-tax cost of debt 20% Tax rate 0.8 Beta of common stock 5% Risk free rate 10% Expected return of the stock (common) market \$100 Preferred stock price \$80 Par value of preferred stock \$10 Preferred stock dividend 5% Floatation cost for new preferred stock a) 1st common stock, 2nd preferred stock, 3rd debt b) 1st common stock, 2nd debt, 3rd preferred stock c) 1st preferred stock, 2nd debt, 3rd, common stock d) 1st preferred stock, 2nd common stock, 3rd debt e) 1st debt, 2nd, common stock, 3rd preferred stock f) 1st debt, 2nd preferred stock, 3rd common stock

See attached file with 15 problems. 1. A firm wants to expand its business and to do so it must issue new capital (debt, common stock, or preferred stock) since its internal cash flow is not sufficient to pay for the expansion. The firm wants to issue the cheapest type of capital. Given the following information, what type of

### Corporate Finance

1.Baron Inc. bonds have a face value of \$1000 and mature in 10 years. The coupon rate is 18%, and coupons are paid semiannually. The yield is 12% compound semiannually. Find the bond's price. 2. Danish Inc. has cumulative preferred stock that pays an annual dividend of \$4.50. If the current price is \$37.50, what is the r

### Finance Exam Practice Problems

1) After-Tax Cost of Debt LL Incorporated's currently outstanding 11 percent coupon bonds have a yield to maturity of 14 percent. LL believes it could issue at par new bonds that would provide a similar yield to maturity. If its marginal tax rate is 40 percent, what is LL's after-tax cost of debt? Round your answer to two decim

### Will the bond prices be the same? Will they remain at the current level until maturity?

3 \$1,000 face value, 10 yr, noncallable bonds, same risk, YTM's are equal. Bond 8 has an 8% annual coupon Bond 10 has a 10% annual coupon Bond 12 has a 12% annual coupon Bond 10 sells at par. If interest rates are constant for next 10 years, does it make sense that they should all have the same price and the bond prices

### Finance:Cost of capital, Capital budgeting and Bonds.

I need step by step calculations using EXCEL functions showing how these 7 problems would be solved. The answers to each problem is at the end of the attachment. Please use EXCEL functions/formulas to show how each problem can be solved and a brief explanation of what the answers mean. That will help me to greatly understa

### Managing Debt for Different Companies

1. Delaware Steel Company has \$100 million of 13 percent debentures outstanding. The indenture (loan covenants) limits additional borrowing such that the total interest coverage (EBIT/interest) is at least three times. Delaware's EBIT last year was \$52 million. How much could Delaware borrow under a term loan at 13 percent inter

### After-Tax Cost of Debt; Project's NPV; Ethier's shareholders financial risk

See attached file. Problem 9-2, "After-Tax Cost of Debt" from Chapter 9, page 371. Explain how cost of capital financing techniques affects the organization. Problem 10-1, "NPV" from Chapter 10, page 414. Explain how to use capital budgeting and relevant cash flow to compare investment alternatives. Problem 15-3, "Premium

1. Debt guarantees are: never disclosed in the financial statements. considered to be a contingent liability. a bad business practice. recorded as a liability even though it is highly unlikely that the original debtor will default. 2. When a bond sells at a premium, the: contract rate is above the

### Finance

You are a bond-buyer for the brokerage firm Wecan-Barely-Ketchum, and you have three separate parties interested in purchasing bonds from your available portfolio selection. Group 1 requires a minimum 15% yield. Group 2 has said that they are out for a quick killing and will settle for no less than 8%, but do not require more th

### Financial accounting: Comparison of assets and equity bases

Laurel company has assets of \$2 million and long-term, 10% debt of \$1,200,000. Hardy Company has assets of \$2 million and no long-term debt. The annual operating income (before interest) of both companies is \$400,000. Ignore taxes. 1. Compute the rate of return on a. assets b. stockholder equity. 2. Evaluate the relative m

### Finance Problems

1. Assume a \$4,000 investment and the following cash flows for two alternatives. Year Investment X Investment Y 1 \$1,000 \$1,300 2 800 2,800 3 700 100 4 1,900 5 2,000 a. Under the payback met

### Corporate Finance: Bond value, YTM, stock worth, growth rate, interest rate risk, beta

Problems: Number 1: (Bond valuation) A \$1,000 face value bond has a remaining maturity of 8 years and a required return of 7%. The bond's coupon rate is 8%. What is the fair value of this bond? Number 2 (Yield to maturity) Smith In

### Shor Company: Calculate and prepare Bond Journal Entries

During the year Shor Company issued several series of bonds. For each bond, record the journal entry that must be made upon the issuance date (Round to the nearest dollar; a calculator is needed for 2 and 3. 1. On March 15, a 20-year, \$5000 par value bond series with annual interest of 9 percent was issued. Three thousand of

### Micro Spinoffs, Inc: what is the after tax cost of debt?

Micro Spinoffs, Inc., issued 20-year debt one year ago at par value carrying a coupon rate of 8 percent (payable annually). Today, the debt is selling at \$1,050. If the firm's tax bracket is 35 percent, what is the after-tax cost of debt for Micro Spinoffs?

### Finance: 10 Multiple choice questions

1. You deposit \$1,000 today in a savings account that pays 3.5% interest, compounded annually. How much will your account be worth at the end of 25 years? \$2,245.08 \$2,363.24 \$2,481.41 \$2,605.48 \$2,735.75 2. A security analyst obtained the following information from Prestopino Products' financial statemen

### Calculations and entries for Lake Co, MullerB, Health Food, Inc, Python Company

1. Lake Co. receives nonrefundable advance payments with special orders for containers constructed to customer specifications. Related information for 2009 is as follows (\$ in millions): Customer advances balances, Dec. 31, 2008 \$110 Advances received with 2009 orders \$195 Advances applicable to

### KD's Cowboy Bar and Grill Ltd: Selling price of bonds, journal entry for premium

Please explain the steps to find the amounts. KD's Cowboy Bar and Grill Ltd. is a country and western style restaurant and club chain based in Red Deer, Alberta, that specializes in barbecue food and country music. On January 1, 2008, it issued \$250,000 face value five-year, semi-annual bonds to provide capital to expand the

### Finance Stock Investing and Risk Required Rate of Return

1. How can it be possible to invest in two stocks and have less risk than if you invested all your money in only one of them? 2. Explain why a foreign investment project might have a lower required return than an otherwise-identical domestic project. 3. What is the relationship between interest rates and bond prices? Whe

### 20 multiple choice questions about bonds, stocks and options

Question 1 Moerdyk Corporation's bonds have a 10-year maturity, a 6.25% semiannual coupon, and a par value of \$1,000. The going interest rate (rd) is 4.75%, based on semiannual compounding. What is the bond's price? \$1063.09 \$1090.35 \$1118.31 \$1146.27 \$1174.93 Question 2

### Warranty and coupon computation

Schmitt Company must make computations and adjusting entries for the following independent situations at December 31, 2011. 1. Its line of amplifiers carries a 3 year warranty against defects. On the basis of past experience the estimated warranty costs related to dollar sales are: first year after sale-2% of sales; second ye