Please see the attachment. 7-3 The values of outstanding bonds change whenever the going rate of interest changes. In general, short-term interest rates are more volatile than long-term interest rates. Therefore, short-term bond prices are more sensitive to interest rate changes than are long-term bond prices. Is that stateme
1. Suppose an investor is considering a corporate bond with a 7.17% before-tax yield and a municipal bond with a 5.93% before-tax yield. At what marginal tax rate would the investor be indifferent between investing in the corporate and investing in the muni? Choose one of these answers? 15.4% 23.7% 39.5%
An analyst is evaluating two companies, A and B. Company A has a debt ratio of 50% and Company B has a debt ratio of 25%. In his report, the analyst is concerned about Company B's debt level, but not about Company A's debt level. Which of the following would best explain this position? a. Company B has much higher operatin
Suppose you are in corporate treasury and placing a $50 million bond issue with a 5.56 percent coupon and a 20-year maturity. Interest is paid semiannually. On the day of the issue, prior to the formal go-ahead by the CFO, your investment bankers note that two other competing issues are being offered and suggest that your issue
Please answer the following problem in an Excel file. Suppose you are considering purchasing a 10% annual coupon bond, with 15 year remaining. The par value is $1000. Given the rating of the bond investors are requiring 15% return on bonds of this type. What is your estimate of the bond's value, in other words how much are
You have just purchased a 10 year $1000 par value bond. The coupon rate on this bond is 8 percent annually, with interest being paid each six months. If you expect to earn 10 percent simple rate of return on this bond how much did you pay for it? You expect to receive $1000 at the end of each of the next three years. You wi
Show work for all 3 questions in a word document. Show work for all 3 questions in a word document. A bond has a $1000 face value, a market price of $1,115, and pays interest payments of $90 every year. What is the coupon rate? A 7 percent bond has a yield to maturity of 6.75 percent, 10 years to maturity, a face value
Value of acquisition and NPV of mergers. loatation costs and refunding NPV. NAL and Lessee's analysis. Conversion price, bonds with warrants, and convertibles. Please see the attachment. 1. The "preferred" feature of preferred stock means that it normally will generate a higher total return for the stockholder than comm
Coupon interest rate on warrants. Please see the attachment. Shearson PLC's stock sells for $42 per share. The company wants to sell some 20-year, annual interest, $1,000 par value bonds. Each bond will have attached 75 warrants, each exercisable into one share of stock at an exercise price of $47. Shearson's straight bond
A. Marginal propensity to expend is 0.5 and there is a recessionary gap of $200. What fiscal policy would you recommend? b. Why does cutting taxes by $100 have a smaller effect in GDP than increasing expenditures by $100? a. Suppose imports were a function of disposable income instead of income. What would be the new m
Congratulations! You have been appointed as economic policy advisor to the United States. You are told that the economy is significantly below its potential output and the following is projected for next year: world output will fall significantly and the price of oil will rise significantly. a. What is meant by potential ou
Common stocks of the Anders Company which currently has no debt in its capital structure are trading for $50 a share. Threes has 2 million shares outstanding now. Threes Co. uses the CAPM in estimating costs of capital. The (unlevered) equity beta for Threes Co. is 1.25, and the risk-free rate and the market portfolio return are
Neues Geschaft, Inc., has an outstanding perpetual bond with a 10% coupon rate that can be called in one year. The bonds make annual coupon payments. The call premium is set at $150 over par value. There is a 40% chance that the interest rate in one year will be 12%, and a 60% chance that the interest rate will be 7%. If the cu
1. What is the value of a common stock if the growth rate is 8 percent, the most recent dividend was $2, and investors require a 15 percent return on similar investments? A. $25.78 C. $28.57 B. $27.34 D. $30.85 2. Which of the following preferred stock properties would provide the best argument favoring purchase of preferr
The Landis Corporate had 2008 sales of $100 million. The balance sheet items that vary directly with sales and the profit margin are below: Cash: 5% Accounts receivable: 15% Inventory : 25% Net fixed assets: 40% Accounts payable: 15% Accruals: 10% Profit margin after tax: 6% The dividend payout rate
A Brokerage firm has just been instructed by one of its clients to invest $250,000 for her money obtained recently througn the sale of land holdings in Ohio. The client has a good deal of trust in the investment house, but she also has her own ideas about the distribution of the funds being invested. In particular, she requests
Bristol Myers Squibb, an international pharmaceutical company, is initiating a new project for which it requires $2.5 million in debt capital. The current plan is to sell 20-year bonds that pay 4.2% per year, payable quarterly, at a 3% discount on the face value. BMS has an effective tax rate of 35% per year. Determine (a) the t
A company has a large bond issue whose covenants require: (1) That the company's interest coverage ratio exceeds 4.0 (2) That the company's ratio of tangible assets to long term debt exceeds 1.50 (3) That cumulative dividends and share repurchases not exceed 60% of cumulative earnings since the date of the issuance of the bo
1. Yield to Maturity Calculate the yield to maturity of an 8% coupon bond with 5 years to maturity if the bond sells for $800. The face value of the bond is $1,000. 2. Valuing Stocks with Constant Dividends A stock pays $2.50 in dividends and has a required rate of return of 12%. Calculate the curre
Catt Co. issued $3,000,000 of 12%, 5 year convertible bonds on December 1, 2003, for $3,013,000 plus accrued interest. The bonds were dated April 1, 2003 with interest payable April 1 and October 1. Bond premium is amortized each interest period on a straight-line basis. Catt Co. has a fiscal year end of September 30. On Octo
Question 1 A $1,000 par value bond with a conversion price of $40 has a conversion ratio of ________. a) $25 b) 25 shares c) $40 d) 40 shares Question 2 A firm has beginning inventory of 300 units at a cost of $11 each. Production during the period was 650 units at $12 each.
What is the implied value of the call provision? What is the implied value of the conversion feature?
Suppose that the yield curve on bonds that are free of the risk of default is flat at 5% per year. a 20 year default-free coupon bond (with annual coupons and $1,000 face value) that becomes callable after 10 years is trading at par and has a coupon rate of 5.5% Questions: a) What is the implied value of the call provision
Laser Industries has just issued callable ten-year, 8% coupon bonds with semi-annual coupon payments. The bonds can be called at 102 in three years or anytime thereafter on a coupon payment date. The current bond price is 99. For an investment today in these bonds (assuming no transaction costs): a. What is an investor's Y
A. What are the capital structure weights? b. Calculate the company's Weighted Average Costs of Capital.
OUR Corp. has a current capital structure of $18 million in secured bonds paying 6.5% annual interest, and common stock with a market value of $42 million. Its marginal tax rate is 40% and its cost of common equity capital is 13%. a. What are the capital structure weights? b. Calculate the company's Weighted Average Cost
The British government has a consol bond outstanding paying 100 per year forever. Assume the current interest rate is 4% per year. 1) What is the value of the bond immediately after a payment is made? 2) What is the value of the bond immediately before a payment is made?
KAYE CO ISSUED $1,000,000 FACE AMOUNT OF 11% 20 YEAR BONDS ON APRIL 1 2004. THE BONDS PAY INTEREST ON ANNUAL BASIS ON MARCH 31 EACH YEAR. A. ASSUME THE MARKET INTEREST RATES WERE SLIGHTLY LOWER THAN 11% WHEN THE BONDS WERE SOLD. WOULD THE PROCEEDS FROM THE BOND ISSUE HAVE BEEN MORE THAN, LESS THAN OR EQUAL TO THE FACE AMOUNT?
Use the following data for questions 1 and 2 below: Quayle Company bought real estate, on which there was an old office building, for $800,000. It paid $80,000 in cash as a down payment and signed a 10% mortgage for the remainder. It immediately had the old building razed at a net cost of $70,000. Attorneys were paid $12,000 in
1. Garvin Enterprises' bonds currently sell for $1,150. They have a 6-year maturity, an annual coupon of $85, and a par value of $1,000. What is their current yield? 2. Wachowicz Corporation issued 15-year, noncallable, 7.5% annual coupon bonds at their par value of $1,000 one year ago. Today, the market interest rate on thes
How do you calculate the value of a bond that will mature in 14 years and has a face value of $1,000 if the annual coupon interest rate is 7% and the investor's required rate of return is 10%?