At what point would an investor be indifferent between a corporate bond yielding 10.8 percent and a tax-free municipal bond of equal financial strength if the investor's marginal tax rate is 25 percent? (i.e. what would the yield be on the muni bond at the point where the investor is indifferent between the muni and the coopera
You are a bond portfolio manager who expects interest rates to decline by 1% over the next year. You are required to mark your portfolio to market each quarter, and measured on your resulting performance. Which of the following two bonds would you prefer to hold? WHY have you made this choice? (no calculations, just words an
a. What is the price (expressed as a percentage of the face value) of a one-year, zero-coupon corporate bond with a AAA rating? b. What is the credit spread on AAA-rated corporate bonds? c. What is the credit spread on B-rated corporate bonds? d. How does the credit spread change with the bond rating? Why? The following
You are called in as a financial analyst to appraise the bonds of Olsen's Clothing Stores. The $1,000 par value bonds have a quoted annual interest 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. Compute the price of the bonds based
Question 1: (Financial Statement Analysis) Consider the following set of financial statements (attached): a. What is the company's average annual rate of sales growth from 2008 through 2010? b. How long, on average, was Better Mouse Trap taking to collect on its receivable accounts in 2010? (Assume all of the company
Stacy Company issued five year, 10% bond with a face value of 10,000 on Janurary 1,2008. Interest is paid annually on December 31st. The market rate of interest on this date is 8% and Stacy Company receives proceeds of 10,803 on bond insurance. 1. Prepare a five year table to amortize the premium using the effective interest
1) As an investment analyst, you are typing to determine the probability of different returns on Omega Corporation's common stock. As a first step you will determine Omega's required rate of return. The 10-year Treasury bond rate is 4%. The market risk premium is 5% and Omega's beta is 1.4. You have already completed calculation
I am trying to calculate the market value of debt and equity.I am given Common stock: $735. million shares outstanding $27.50 cost per share Total stockholders equity of $350 million bond 1 $625 million total face value selling 98% of face value bond 2 $200 million total face value selling for $975 per bond
Chapter 6 43.) Present and Future Values. The present value of the following cash flow stream is $6,550 when discounted at 10 percent annually. What is the value of the missing cash flow? Year Cash Flow 1 $1,700 2 ? 3 $2,100 4 $2,800 Chapter 7 9.) Calculating Real Rates of Return. If treasury bill
An 8-percent--coupon bond sells for $800 and matures in seven years. Calculate its yield to maturity, assuming the following: a. The bond pays a single annual interest payment. b. The bond pays interest semiannually.
Assume you have purchased a 25 year, 9%, $1000 par callable bond with 19 years remaining until maturity and 4 years until the first call. If the call price is equal to par plus one year's interest and the market price is $1,050, what is the appropriate approximate yield, assuming annual interest payments? Please show steps.
Suppose you have a bond that pays a 6% coupon, matures in 15 years and has a current price of $850. If you expect to sell it in 5 years at $950, what is your approximate realized yield? (For simplicity, assume an annual convention, and a $1,000 par value bond) Please show steps.
Why are bondholders similar to bankers?
1. A 10-year bond pays an annual coupon, its YTM is 8%, and it currently trades at a premium. Which of the following statements is CORRECT: a. The bond's current yield is less than 8%. b. If the yield to maturity remains at 8%, then the bond's price will decline over the next year. c. The bond's coupon rate is less t
Question 1: January 1, 2006, Gold Corp. issued 1,000 of its 10%, $1,000 bonds for $1,040,000. These bonds were to mature on January 1, 2016, but were callable at 101 any time after December 31, 2009. Interest was payable semiannually on July 1 and January 1. On July 1, 2011, Gold called all of the bonds and retired them. Bond p
.Drywall Systems, Inc., is presently in discussions with its investment bankers regarding the issuance of new bonds. The investment banker has informed the company that different maturities will carry different coupon rates and sell at different prices. Drywall Systems must choose among several alternatives. In each case, the bo
1. Office supplies have a balance of $2,400. An inventory at 12/31 shows $1,700 of supplies on hand. 2. There are two insurance accounts in the trial balance, prepaid insurance-$9,200 and Insurance Expense $2,800. Unexpired insurance at the statement date is $3,000. 3. All rent receipts ($25,000) were credited to rent income
annual interest at a 12% coupon rate. As a result of current interest rates, the bonds can be sold for $1,010 each. Flotation costs of $30 per bond will be incurred in the process (which implies that f = 2.97%, or 0.0297 in decimal form) and the firm is in a 40% tax bracket. a. Find the net proceeds from the sale of each
Compute based on the following, consider the following: 1. Bond w/5 yr term to mature, 12% coupon (annual), market yield 10%. 2. Bond w/4 yr term to mature, 12% coupon (annual), market yield 10%. 3. Compare answers for 1 & 2, discuss implications of this for classical immunization. Show work.
See the attached file. SQ 9-9. Define and explain the use of the following: (a) long hedge; (b) short hedge; and (c) cross hedge. SQ 9-10. Which type of hedge named above works best in an environment of rising interest rates? Of falling interest rates? Illustrate both cases using a payoff diagram. SQ 9-11. What is the ba
The Sisyphean Company has a bond outstanding with a face value of $1000 that reaches maturity in 15 years. The bond certificate indicates that the stated coupon rate for this bond is 8% and that the coupon payments are to be made semi-annually. Assuming the appropriate YTM on the Sisyphean bond is 7.5%, then at what price s
The Florida investment Fund buys 90 bonds of the Gator Corp. through a broker. The bonds pay 8% annual interest. The yield to maturity is 10%. The bonds have a 25 year maturity Using an assumption of semiannual interest payments: a. Compute the price of a bond .Need to calculate payments for interest then principle.
3. A four year TIPS bond promise a real annual coupon return of 4 percent, and the face value is $1,000. The annual inflation rate was zero at the time it was issued; the inflation rate is now 3% and is expected to remain at this level for the four year term. What will be the amount of interest paid in nominal dollars each
Which is a commonly used proxy for the "risk-free rate"? A. The current yield to maturity on a long-term government bond. B. The current market rate interest rate on a government-insured savings account C. The average historical interest rate on long-term government bonds D. The rate of return on a low volatility stock
Suppose a 10-year bond is issued with an annual coupon rate of 8 percent when the market rate of interest is also 8 percent. If the market rate rises to 9 percent, what happens to the price of this bond? What happens to the bond's price if the market rate falls to 6 percent? Explain why. An investor is interested in purchasin
Question 1 Phoenix Company common stock is currently selling for $20 per share. Security analysts have assigned the following probability distribution to the price of (and rate of return on) Phoenix stock one year from now: Price Rate of Return Probability $16 -20% .25 $20
Ford is about to issue a new corporate bond, face value = $1,000, coupon rate=8%, maturity = 4 years (annual coupon payments). You know that a very similar bond issued by GM is already trading in the bond market with price = $1020, face value = $1,000, coupon rate = 6% and maturity = 5 years (annual coupon payments). What woul
You are given two bonds (Bond A & Bond B) which have different payment schedule. Based on the following information, you wish to figure out which bond has a greater interest rate risk. (You need to calculate duration and volatility of bonds) o Bond A: 2 year discounted bond with face value of $1000. o Bond B: 2 year coupon
18. You wish to price a new 2-year Treasury note with face value =$1,000, coupon rate = 4%. You observe the prices of two treasury securities already trading in the market. What would the price of new 2 year Treasury note? (Annual coupon payment) o 1 year Treasury note with price = $980, coupon rate = 3%, face value = $1,000
1. When the demand for bonds _________ or the supply of bonds _________, interest rate rise. A. decreases; increases B. decreases; decreases C. increases; decreases D. increases; increases 2. When the price of a bond is _________ the equilibrium price, there is an excess demand for bonds and the price wil