Bond Price and Cost of Equity
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Company's A $1,000 par value bond has 13 years remaining until it matures. Interest is paid quarterly, the yield to maturity is 7%, and the coupon rate is 12%.
a) What's the price of this bond?
b) If the yield to maturity on all bonds in the economy increased to 14%, would the Company's A bond increase or decrease more than Company's B bond that has all the same features as the Company's A bond except that Company's B bond has a maturity of 3 years? Why?
A firm has a target capital structure of 30% equity and 70% debt. The firm's tax rate is 35% and the yield to maturity on the firm's outstanding bonds is 8.2%. The firm's weighted average cost of capital is 8.76%.
What's the firm's cost of equity capital?
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Solution Summary
This solution provides calculations in Excel for the price of a bond, changes in bonds, and cost of equity capital.
Education
- BA, Ain Shams University, Cairo Egypt
- MBA, California State University, Sacramento
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