Assuming the real risk rate of 2% and a maturity risk premium that equals 0.1x(t)%, where t is the number of years to maturity, estimate the interest rate on bonds that mature in 1, 2, 5, 10, and 20 yrs. I need to know how to figure out this problem. Also the inflation rate is 13%
Please help with the following problem. How does the signaling model of financial structure differ from the pecking-order model with respect to the assumption in this hypothesis of asymmetric information?
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%?
What kind of advantages a company can have by issuing bonds, or investing its profit in stock market for example investing in other companies stock, and what kind of problem can it ( company) have by investing in the stock market for example inconvenient of a bad investment into the stock market system.
At the beginning of the year, you bought a $1,000 par value corporate bond with a 6% annual coupon rate and a 10 year maturity date. When you bought the bond, it had an expected yield to maturity of 8%. Today the bond sells for $1,060. A) What did you pay for the bond? B) If you sold the bond at the end of the year, what w
American Fortunes is preparing a bond offering with an 8% coupon rate. The bonds will be repaid in 10 years. The company plans to issue the bonds at par value and pay interest semiannually. Given this, which of the following statements are correct? (I.) The initial selling price of each bond will be $1,000. (II.) After the b
The "teacher" in this course thinks that by reading a module, that somehow I'll understand the logic to these questions. I have some of the formulas figured out, but I'm lost as to why I'm not getting the any of the options as answers. ABC Co. pays out 60% of its earnings as dividends. Its return on equity is 15%. What is th
If 10-year T-bonds have a yield of 6.2%, 10-year corporate bonds yield 8.5%, the maturity risk premium on all 10-year bonds is 1.3%, and corporate bonds have a 0.4% liquidity premium versus a zero liquidity premium for T-bonds, what is the default risk premium on the corporate bond?
Please help with the following problem: Johnson Inc.'s bonds currently sell for $1,250. They pay a $120 annual coupon, have a 15-year maturity, and a $1,000 par value, but they can be called in 5 years at $1,050. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume
Two bonds of equal risk are for sale on the secondary bond market. The two bonds have the same face value, and both mature in 10 years. Bond A pays $10 per year and bond B pay $15 per year. Which bond will sell for a higher price? a. Bond A. b. Bond B. c. They will sell for the same price. d. The relative prices will dep
Over the last two years, the XYZ Bond mutual fund owned by the White family, valued at $60,000, has returned them quarterly dividends as follows; -0-; $1800; $1200; -0-; $800; $1000; $1200; $1500. These were all withdrawn as soon as received and not reinvested. If the Whites were to sell this fund now for its current balance and
One year ago, you purchased a $1000 face value bond of Sox Corp. The bond carries a coupon rate of 6%, and the coupons are paid annually. At the time of your purchase, the bond had three years remaining until maturity and a yield to maturity (YTM) of 6%. The current YTM is 4%. If you sell your bond today, calculate the return yo
Assume a world without taxes. Two firms, Max Corp. and Dell Corp. are identical in every way except for their capital structures. Max, an all-equity firm has 200,000 shares of common stock outstanding; each share sells for $30. The cost of equity for Max is 12%. In addition to equity financing, Dell uses leverages; it has 3,000
Please see attached questions. Please explain how you got the answers that you provide. 1. The future value of an annuity due is greater than the future value of an otherwise identical ordinary annuity. a . True b. False 2. If we invest money for 10 years at 8 percent interest, compounded semi-annually, we are re
If you put $1,000 in a savings account with a 5% nominal rate of interest compounded quarterly, what will the investment be worth in 6 years (round to the nearest dollar)?
1. If you put $1,000 in a savings account with a 5% nominal rate of interest compounded quarterly, what will the investment be worth in 6 years (round to the nearest dollar)? a. $1,003 b. $,1,132 c. $ 1,228 d. $ 1,347 2. As market rates of interest rise, investors move their funds into bonds, thus increasing the
As an investor, you are considering an investment in the bonds of the Conifer Coal Company. The bonds, which pay interest semiannually, will mature in 8 years, and have a coupon rate of 7.5% on a face value of $1000. Currently, the bonds are selling for $900. a. If your required return is 9% for bonds in this risk class, what
An increase in interest rates will cause the current resale value of a long term bond to increase more than that of a short term bond.
I need to discuss the answers in class with some explanations. True or False with an explanation 1. An increase in interest rates will cause the current resale value of a long term bond to increase more than that of a short term bond. 2. In the CAPM, Beta can best be described as the relative volatili
Polly Graham will receive $12,000 a year for the next 15 years as a result of her patent. If a 9 percent rate is applied, should she be willing to sell out her future rights now for $100,000?
I need to discuss the answers in class. Just wanted to double check my answers to be sure. 1. Polly Graham will receive $12,000 a year for the next 15 years as a result of her patent. If a 9 percent rate is applied, should she be willing to sell out her future rights now for $100,000? 2. The Clearinghouse Sweepstakes has j
Given the following information for Bellevue Power Co., the WACC is percent. Assume the company's tax rate is 34 percent.
Finding the WACC Given the following information for Bellevue Power Co., the WACC is percent. Assume the company's tax rate is 34 percent. (Do not include the percent sign (%). Round your answer to 2 decimal places, e.g. 32.16.) Debt: 4,500 5.5 percent coupon bonds outstanding, $1,000 par value, 21 years to matu
1. The Balance sheet for Sam Corporation is shown below. Sales for the year were $3,040,000, with 75% of sales sold on credit.3-19 Sam Corporation Balance Sheet 2007 Assets Liabilities and Stockholders Equity Cash.......................$ 50,000 Accounts payable................$ 220,000 Accounts rece
The Nickelodeon Manufacturing Co. has a series of $1000 par value bonds outstanding. Each bond pays interest semi-annually and carries an annual coupon rate of 7%. Some bonds are due in three years while others are due in 10 years. If the required rate of return on bonds is 10%, what is the current price of: a) the bonds w
Question 6 (Bonds) (12 marks) A company decides to issue 10,000 bonds with a 10-year maturity and a 6% coupon rate. The bond has a face value of $1,000 and pays semi-annual coupons. The market requires an effective yield to maturity on a bond with similar risk of 7%. (a) What is the fair price of the bond? (6 marks) In or
Please see the attached file. Question 5 (Bonds) You purchased a 10-year bond on the basis of a current yield of 6.5%. The face value of the bond at maturity is $1,000 and the coupon rate is 6% (APR) payable semi-annually. (a) What are the purchase price of the bond and its YTM? (b) The day after you bought the bond, in
Please see the attached file. Understanding Returns 6-1 You purchase 1,000 shares of Spears Grinders, Inc. stock for $45 per share. A year later, the stock pays a dividend of $1.25 per share, and it sells for $49. a. Calculate your total dollar return. b. Calculate your total percentage return. c. Do the answers to p
Please see the attached file. Valuation Basics 1. A best selling author decides to cash in on her latest novel by selling the rights to the book's royalties for the next four years to an investor. Royalty payments arrive once per year, starting one year from now. In the first year, the author expects $400,000 in royalties
Consider the two bonds described below Bond A Bond B Maturity(years) 15 20 Coupon rate(0%) 10 6 Paid semiannually Par Value $1,000 $1,000 a. If both bonds had a req
A $1,000 par value bond sells for $1,216. It matures in 20 years, has a 14 percent coupon, pays interest semiannually, and can be called in 5 years at a price of $1,100. What is the bond's YTM and YTC? YTM YTC a. 6.05%; 9.00% b. 10.00%; 10.26% c. 10.06%; 12.00% d. 11.26%; 14.00% e. 11.26%; 10.00%
The Stuart Corporation has excess cash to invest in one of two securities. The company's tax rate is 40 percent. The first alternative is a 10-year, 10 percent coupon bond (with semiannual interest payments) that has a current price of $1,000 and a yield of 10 percent. The second alternative is the preferred stock of Pickett
If I have a company whose beta is .54,the present yield to maturity on U.S. government bonds maturing in one year (currently about 4.5% annually) and an assessment that the market risk premium is 6.5%, using the CAPM equation,what is the present cost of equity of my company? If I have 2 companies, A and B, the beta of A is .
At your favorite bond store, Bonds R Us, you see the following prices: One year $100 zero selling for $90.19 Three year 10% coupon $1000 par bond sell for $1000 Two year 10% coupon $1000 par bond selling for $1000. Assume that the expectations theory for the term structure of interest rates holds, no liquidity premiu