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# Bonds

### Bonds and Warrants

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

### Marginal Propensity

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

### Price and Output

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

### YTM/YTP for an Investment

You just bought a 10 year bond with 5% annual coupon, payable semiannually, on \$1,000 par for \$1,025. The bond has put provisions that the issuing firm should retire bonds for \$950 per bond if the YTM rises to 7% or higher in three years. Compute the yield-to-maturity (YTM) and the yield-to-put (YTP) of your investment.

### Calculating Total Implicit Interest Rates: Example Problem

If a company needs to raise \$10 million by issuing 10-year zero coupon bonds. Your firm's cost of debt is 8%. Compute the total implicit interests for the first year (year 1) and the last year (year 10).

### Cost of equity/cost of debt/ WACC

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

### Bond Refunding

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

### WACC and Current Bond Price

If Wild Widgets, Inc, were an all-equity co, it would have a beta of 1.1. The co. has a target debt-equity ratio of .40. The expected return on the market portfolio is 13 percent, and the treasury bills currently yield 7 percent. The company has one bond issue outstanding that matures in 20 years and has a 9 percent coupon rate

### Accounting

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

### Landis Corporation pro forma income statement, balance sheet current and future

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

### Linear Programming Modeling

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

### Approximate Bond Yield to Maturity of a Corporation

The Pioneer Petroleum Corporation has a bond outstanding with an \$80 annual interest payment, a market price of \$900, and a maturity date in two years. Assume the par value of the bond is \$1,000. Find the Approximate Yield to Maturity.

### Bond pricing Black-Scholes

Company ABC currently has net assets worth \$140 million and has issued \$100 million in debt in the form of a zero-coupon bond that matures in one year. By looking at the equity market, we estimate that the volatility of the asset value is 30%. The risk-free interest rate is at 5%. Please find: 1) Equity value of the company acc

Assume one firm issues two bonds, a one-year bond trading at \$100 with a \$6 annual coupon and a two-year bond trading at \$100 with a \$7 annual coupon. Assume recovery is 50% for these two bonds if defaulted, what's the survival probability of this firm for one year and two years?

### Bond Theory

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

### Comparing Borrowing Costs: Example Problem

A company has two financing alternatives: (1) A publicly placed \$50 million bond issue. Issuance costs are \$1 million, the bond has a 9% coupon paid semiannually, and the bond has a 20-year life. (2) A \$50 million private placement with a large pension fund. Issuance costs are \$500,000, the bond has a 9.25% annual coupon

### Bond covenants

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

### use CAPM to calculate IBM's required rate of return or ks

Use CAPM to calculate IBM's required rate of return or ks

### Bond Price and Analyst Values

An analyst values a newly issued, 15-year, 9 percent annual coupon bond at par as of April 1, 2000. On April 1, 2008, the market prices the bond to yield 8.3 percent. What is the price of the bond on April 1, 2008?

### Economics - Finance - Standard Deviation of Bond and Stock

A portfolio contains \$40,000 in bonds and \$60,000 in stocks. The expected return on bonds is 7% with standard deviation of 1%. The expected return on the stocks is 12% with standard deviation of 8%. Assuming that the bonds and stocks are uncorrelated, determine the standard deviation of the above bond and stock portfolio.

### Finding the Effective Annual Interest Rate

Which security has a higher effective annual interest rate (a or b)? a. A 6-month T-bill selling at \$96,525 with par value of \$100,000. b. A coupon bond selling at par paying a 10% coupon semiannually. Please show calculations. I don't understand.

### Valuation

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

### Banks create money

Explain how do banks create money? What is money multiplier? American (and world) history is rich with examples of bank crises, often the result of overly expansive loan policies by private banks. As recently as 2007, subprime bank loans (real estate loans made to borrowers with relatively poor credit ratings) have resulted i

### Stock type contrast; poor inventory turnover

See attached.

### Conversion of bonds

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

### Fiancial management

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.

### Concepts of Yield to Matury & Internal Rate of Return

Comment on the following statement: "In perfect generality, the YTM of a bond is the IRR of a stream of cash flows, i.e. the market price and all subsequent coupon payments plus the terminal principal payment, and it represents the expected return of holding the bond to maturity."

### 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

### A. What is an investor's Yield to Maturity? b. What is an investor's Yield to Call?

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