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# Bonds

### Range of Returns

See the attached file. a) Explain why the geometric and arithmetic mean returns are not equal and whether one or the other may be more useful for investment decision making. b) For the time period indicated, rank these investments on a risk-adjusted basis from most to least desirable. Explain your rationale. c) Assume t

### Equity and bond valuation

Company A expects next year's free cash flow to equity (FCFE) to be \$1000. Thereafter, FCFE is expected to grow at 2% for 3 years, 3% for 2 years and 4% indefinitely. What is the value of company A, assuming a required return of 12%?

### NPV

Need some assistance with the attached problems. Thank you. potential of starting a series of restaurants

### Bonds

A 20-year, 8 % semiannual coupon bond with a par value of \$1,000 may be called in 5 years at a call price of \$1,040. The bond sells for \$1,000. (Assume that the bond has just been issued.) Complete the attached spreadsheet, answering the following: a) What is the bonds yield to maturity? b) What is the bond's current yield?

### Economics

Please explain how government interaction in the U.S. economy can bring about market stability.

### Investments: Hedging

XYZ investments is considering issuing a structured note known as a bear floater to a client, ABC insurance. A bear floater is a floating-rate note designed to allow an investor to profit from rising interest rates. Thus, an investor in a bear floater would be bearish on bond prices. Like an inverse floater, the bear floater can

### OID Bond Questions

Cosmic Communications Inc. is planning two new issues of 25-year bonds. Bond Par will be sold at its \$1,000 par value, and it will have a 10% semiannual coupon. Bond OID will be an Original Issue Discount bond, and it will also have a 25-year maturity and a \$1,000 par value, but its semiannual coupon will be only 6.25%. If both

### Bond rates are emphasized.

Question 1 A firm combines two resources, X and Y, to produce an output level Q in a purely competitive market. The cost of a unit of X is \$15 and the cost of a unit of Y is \$8. The marginal product of X is 30 units and the marginal product of Y is currently 24 units at output level Q. What would you recommend that the firm

### MM Theory is applied.

1. Anderson's Furniture Outlet is levered firm with a tax rate of 34% and expected earnings before interest and taxes (EBIT) of \$1,600. The company has \$3,000 in bonds outstanding that have an 8% coupon and pay interest annually. The bonds are currently selling at par value. For simplicity, you may assume perpetual EBIT and perp

### A strategy using derivatives is proposed.

Because of your impending MBA, you are the chair of the pension committee at the hospital where you work. Itââ?¬â?¢s a small, young hospital with a \$40 million pension account-50% invested in an international bond index fund, and 50% invested in a S & P 500 index fund. Your economics/financial consultant expects a rise

### Gross Domestic Product is investigated.

What is nominal GDP? What is real GDP? What is included in each? Why are these measures important? What do they tell us? What was GDP for the last two years (taken from the BEA)?

### According to the MM theory, what is the initial change in equity value upon the announcement of the debt for equity exchange?

An all equity financed firm has 10 million shares outstanding. The firm has perpetual EBIT of \$20 million. Its current cost of equity is 10%. The firm plans to issue a perpetual bond with \$1,000 FV, 10% annual coupon, and 10% YTM. A total of 10,000 units of such bond will be issued. Use perpetuity concept to evaluate a perp

### Capital Budgeting

Joe the cut-rate bond dealer has offered to sell you a ten year zero-coupon bond for \$300. (Remember, zero-coupon bonds pay their owners \$1,000 at maturity and involve no other cash flows other than the purchase price.) If your required rate of return for cut-rate bonds is 20%, what is the NPV of Joe's deal? a. about \$161

### Analyzing the Given Investment Alternatives

An investment fund is considering two different bond investments with equal risk. The investment firm expects an annual return of 15% for all investments. Determine the maximum purchase price of the two following bonds on July 1, 2011. Which is the better investment? a. Zero coupon bond with a face value of \$250,000 with

### Bond Maturity Face Value

A bond that matures in 4 years has a face value of \$1000, a bond rate of 8%, and quarterly coupons. What price should be paid if the investor expects a minimum acceptable rate of return (MARR) of 10% with quarterly compounding?

### Explain which of the following are counted as part of the money supply(MI): a. Checking account deposits b. stocks c. Savings account deposits d. Government bonds

Explain which of the following are counted as part of the money supply(MI): a. Checking account deposits b. stocks c. Savings account deposits d. Government bonds

### Market Substitutes and Term Structure (Yield Curve)

1. The IPAD 2 replaced the IPAD 1 and we can assume they are substitutes. RIM recently introduced the PLAYBOOK and we can assume it is also a substitute for both IPADs. a) Explain what will happen to the equilibrium prices and quantities of the IPAD 2 and the PLAYBOOK if the price of touch screens rises as a result of the dev

### Corporate Finance

1) Future value tables Use the future value interest factors in Appendix Table A 1 in each of the cases shown in the following table to estimate, to the nearest year, how long it would take an initial deposit, assuming no withdrawals, a. To double. b. To quadruple. Case Interest rate A 7% B 40 C 20 D 10 2) Time value As pa

### Corporate Finance

1) Bond prices and yields Assume that the Financial Management Corporations \$ 1,000- par- value bond had a 5.700% coupon, matured on May 15, 2017, had a current price quote of 97.708, and had a yield to maturity ( YTM) of 6.034%. Given this information, answer the following questions. a. What was the dollar price of the bond? b.

### Finance: Net present value

A risky project is expected to last four years and required an initial investment of \$10,000 in year 0. The project is expected to generate cash flows of \$2,000 in year 1; \$4,000 in year 2; \$3,000 in year 3; and \$3,000 in year 4. The company's debt to equity ratio is equal to 1, and is expected to remain constant for the entir

### Bond valuation and relationships are exemplified.

1. Assumed that the Financial Management Corporation's \$1,000 par-value bond had a 5.700% coupon, matured on May 15, 2020, had a current price quote of 97.708, and had a yield to maturity of 6.034%. Given this information, answer the following questions: A. What was the dollar price of the bond? B. What is the bonds curren

### Calculating the Tax Rate of Corporate Bonds

Corporate bonds issued by Johnson Corporation currently yield 8%. Municipal bonds of equal risk currently yield 4.5%. At what tax rate would an investor be indifferent between these two bonds? Round your answer to two decimal places.

### Protection of Bondholders' Claim

If you were in a position to remake the financial world: Why would or wouldn't you have the bondholders' claim be protected to the possible detriment of the shareholders' claim?

### Math conversions & graphs

3. Assume that the following data describe the condition of the banking system (see data in attached file) (a) How large is the money supply? (b) How large are the required reserves? (c) How large are the excess reserves? (d) By how much could the banks increase their lending activty? 6. Assume the banking system c

### Value of a bond

The Wallace Company has issued a 15-year, \$1,000 bond, which pays 10% interest annually. If your required annual rate of return for an investment of this risk is 9%, what is the value of this bond to you?

### Calculate the company's current debt ratio.

1- Pierre Imports recently issued two types of bonds. The first issue consisted of 10-year straight debt with a 10 percent annual coupon. The second issue consisted of 10-year bonds with a 9 percent annual coupon and attached warrants. Both issues sold at their \$1,000 par values. The company's stock is currently selling fo

### Capital Risk Management

Pleasant View Nursing Home has decided to immunize its portfolio against interest rate and reinvestment rate risk by buying a bond that has a duration equal to the years until the funds will be needed (approximately ten years from today). The home is considering a 20-year, 9 percent annual coupon bond bought at its par value of

### Six months T-bills have a nominal rate of 7%, while default free. Japanese bonds that mature in 6 months have a nominal rate of 5.5%. In the spot exchange market 1 yen equals \$0.009. If interest rate parity holds, what is the 5-month forward exchange rate? 2. A TV set costs \$500 in the United States. The same costs 550 Euros in france. If purchasing power parity holds, What is the spot exchange rate between the euro and the Dollar?-

1- Six months T-bills have a nominal rate of 7%, while default free. Japanese bonds that mature in 6 months have a nominal rate of 5.5%. In the spot exchange market 1 yen equals \$0.009. If interest rate parity holds, what is the 5-month forward exchange rate? 2. A TV set costs \$500 in the United States. The same costs 550

### Expected Return, APT Model, Debt-Equity

1) Suppose that the Treasury bill rate were 6% rather than 4%. Assume that the expected return on the market stays at 10%. Use the betas in Table 8.2 . a. Calculate the expected return from Dell. b. Find the highest expected return that is offered by one of these stocks. c. Find the lowest expected return that is offered by one

### Money Demand and the Equilibrium Interest Rate

Illustrate the following situations using supply and demand curves for money: a) The Fed buys bonds in the open market during a recession. b) During a period of rapid inflation, the Fed increases the reserve requirement. c) During a period of no growth in GDP and zero inflation, the Fed lowers the discount rate.