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Bond Valuation

Basic Finance class

True or false questions. 1. If interest rates rise after a bond is issued, the yield to maturity will exceed the current yield. 2. Equipment trust certificates issued by a firm are safer than its debentures. 3. Income bonds are the safest bonds issued by a firm. 4. A period payment to retire a debit is illustrative of a si

Bond valuation, YTM, Constant growth model, realized return, required return

A1. (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? A5. (Yield to maturity) New Jersey Lighting has a 7% coupon bond maturing in 17 years. The current market price of the bond is $975. What is the

Finance: 12 Year, 5% Coupon Bond

Today is January 1. Starting today, Sam is going to contribute $140 on the first of each month to his retirement account. His employer contributes an additional 50% of the amount contributed by Sam. If both Sam and his employer continue to do this and Sam can earn a monthly rate of ½ of 1 percent, how much will he have in his r

Analyze financial statements for Better Mouse Trap; Treasury Bond valuation

See the attached file. Only question 1 (a-d) question 6 (a-d) a. What is the company's average annual rate of sales growth from 2006 through 2008? b. How long, on average, was Better Mouse Trap taking to collect on its receivable accounts in 2008? (Assume all of the company's sales were on credit.) c. Was Better Mo

Financial questions relating to Business Organization, Shareholders' wealth, Cash flow statement, financial ratios, time value of money, CAPM, Bonds, payback, NPV, IRR, IOS and MCC schedule, WACC, Leverage, EBIT-EPS approach, Cash Conversion cycle.

1) Explain the three principal forms of business organization. Outline their respective advantages and disadvantages. How do taxes, risk, scale, and ownership liquidity affect the selection of one of these three methods? 2) Compare the shareholder-wealth-maximization model with the corporate-wealth- maximization m

BOND - yield to maturity, Beta of Stock

Problem 1: James Smith, CFA, has developed the following data on stock X and the market: Return on the market 10% Covariance between the return on stock X and the return on the market 0.03 Correlation coefficient of the return on stock X and the return on the market 0.7 Standard deviation of the return on stock X 0.18 Sta


Ace, Inc. has just paid a $2.00 annual dividend on its common stock. The dividend is expected to grow at a constant rate of 8 percent per year indefinitely. Based on market risk conditions and Ace's beta value, the required rate of return on Ace's stock is 16 percent. What is the current value of Ace's stock? A $1000 face val

Compute bond prices; prepare journal entries for stock and bond transactions

On January 1, a company issues bonds with a par value of $300,000. The bonds mature in 5 years and pay 8% annual interest each June 30 and December 31. On the issue date, the market rate of interest is 6%. Compute the price of the bonds on their issue date. The following information is taken from present value tables: Presen

Risk and Return Finance

1. Suppose the expected return and variance of the market portfolio are 0.15 and 0.002 respectively. If the riskless return is 0.055, what will be the required return on a stock whose return variance is 0.12 and correlation with the market portfolioâ??s return is 0.6? 2. PAB Inc. is evaluating whether to invest in a

Assume your instructor has two bonds in his portfolio

Assume your instructor has two bonds in his portfolio. Both have face values of $1,000 and pay a 10% annual coupon rate. Bond L (longer maturity) matures in 15 years and Bond S (shorter maturity) matures in 1 year What will the value of each bond be if the market interest rate for similar rated and maturing bonds is 5%, 8


Compute the market price of a bond. Banzai Corporation is issuing $200,000 of 8%, 5 year bonds when potential bond investors want a return of 10%. Interest is payaing semiannually. (The bonds are selling at a discount). For an example, refer to Chapter 15, page 668. An example of the computations you need to make are shown in

Estimating a Firm's WACC with Relevant Assumptions

1. Capital Budgeting (45 pts) A proposal to invest in new white table wine-making equipment has been developed. The following information is now provided: 1. Equipment cost (installed) is $2 million 2. Revenues of $1M, $1.2M, 1.3 and $1.4M/yr for each of the next four years. 3. Satyr consulting generated the f

Sinking funds and Bond Questions

Can you please provide the answer along with the explanition and/or calculations? 6. Sinking fund cash would be classified on the balance sheet at: current asset fixed asset intangible asset investment 13. Sinking fund cash would be classified as a current asset? True or False 14. A corp issued $100,000, 13%, 10

Bond Valuation Example Problems

1. Suppose a five year, $1000 bond with annual coupon has a price of $900 and yield to maturity of 6%. What is the bond's coupon rate? 2. Summit Systems will pay a dividend of $1.50 this year. If you expect Summit's dividend to row by 6% per year. What is its price per share if its equity cost of capital is 11% 3. A huge n

Bond trading at premium or discount; maturity, yield, credit spread

1. Consider a five-year, default-free bond with annual coupons of 5% and a face-value of $1000. a) Without doing any calculations, determine whether this bond is trading at a premium or at a discount. Explain. b) What is the yield to maturity on this bond? c) If the yield to maturity on this bond increased to 5.2%, what

MBA Finance

1. Assume that a bond will make payments every six months as shown on the following time-line (using six months periods): 0------1------2-------3---------------------20 $20 $20 $20 $20 + $1000 a) What is the maturity of the bond (in years)? b) What is the coupon rate (in percent)? c) What

Important information about Bond entries

Boone Company issued $240,000 of 8%, 20-year bonds on January 1, 2007, at face value. Interest is payable annually on January 1. Prepare the journal entries to record the following events. (a) The issuance of the bonds (b) The accrual of interest on December 31, 2007. (c) The payment of interest on January 1, 2008. (d) T

Year Bond Semiannual Coupon Annum

2) An airline knows that it will need to purchase 20,000 metric tons of jet fuel in three months. It wants some protection against an upturn in prices using futures contracts. The company can hedge using heating oil futures contracts traded on NYMEX. The notional for one contract is 42,000 gallons. There is no futures contra


Which of the following statements is the most correct and why? A.If a bond sells for less than par, then its yield to maturity is less than its coupon rate. B. If a bonds sell at par, then its current yield will be less than yield to maturity. C. Assuming that both are held to maturity and are equal risk, a bond selling

Valuation of a Private Firm Using Public Firm Fiancial Records

I'm trying to determine the valuation of a private firm. I have two questions regarding the role book value and the competence of its current management play in determining its valuation. I also am trying to fully understand what role does using financial records for public firm of approximately the same size, plays in deter

Capital Valuation

Use the following information to answer questions 3 thorough 4: Suppose a company is going to issue new bond which has an 6% coupon, 30-year maturity with par value of $1000 paying 60 semiannual coupon payments of $30 each. Assume that the market interest rate for this bond is 6% a. What is the price of the bond? b. What wo

Bond maturity

Consider some bonds with one annual coupon payment of 7.25%. The bonds have a par value of $1,000, a current price of $1,125, and they will mature in 13 years. What is the yield to maturity on these bonds?

Magid Corporation: Securities Valuation

The book is: Aswath Damodaran, Investment Valuation, Tools and Techniques for Determining the Value of Any Asset, Second University Edition, John Wiley & Sons, 2002 [ISBN 0-471-4190-5 (paper)] 1. Assume Magid Corporation has the following debt issues outstanding. Calculate the estimated market value of Issues 1 and 2 if th

Practice Finance Questions for quiz

___A 20-year original maturity bond with 1 year left to maturity has more interest rate price risk than a 10-year original maturity bond with 1 year left to maturity. (Assume that the bonds have equal default risk and equal coupon rates.) __You have just noticed in the financial pages of the local newspaper that you can buy a

If Denver's cost of capital is 15 percent, defend which project would you choose. What is the average cash gain or (loss) during a typical month for Chadmark Corporation? Which of the following bank accounts has the highest effective return and why? Which of the following statements is most correct and why?

1. As the director of capital budgeting for Denver Corporation, you are evaluating two mutually exclusive projects with the following net cash flows: Cash Flows A B -$100,000 -$125,000 1 $25,000 $25,000 2 $30,000 $35,000 3 $30,000 $35,000 4 $25,000 $35,000