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# Bonds

### GDP, Multiplier Effect, AS/AD Framework help

1. Which of the following are included in this year's GDP? Explain your answer in each case. a. Interest on an AT&T corporate bond. b. Social security payments received by a retired factory worker. c. The unpaid services of a family member in painting the family home. d. The income of a dentist. e.

### Investment Strategy

Create a brief investment strategy. Set a monetary goal, it could be a million dollars or some other dollar amount. Make the investment plan by considering the income level, age, and potential career growth. Please use the following info: - Annual income: 60K. - Age: 35. - Potential career growth: To own and operate sever

### 1) Using the Balance Sheet figures, calculate capital structure, working capital, current ratio, Acid-test ratio. 2) Using the Income Statement, calculate EPS, return on equity, preferred dividend rate, book value per share. 3) If you are in a 28% tax bracket, which of the following two investments you pick? 4) What is the tax-free yield equivalent of a taxable 9.2% corporate bond for an individual in a 25% tax bracket?

1.Using the Data in the Balance Sheet Attached, calculate the following: Balance Sheet ABC CORPORATION June 30, 1988 Assets Liabilities Cash \$165,000 Accounts payable \$166,000 Marketable securities 18,000 Accrued taxes 70,000 Accounts receivable 260,000 Notes payabl

### PV, FV Bond concepts

PV versus FV 4. If the "discount" (or interest) rate is positive, the present value of an expected series of payments will always exceed the future value of the same series. a. True b. False The discounting is the process of finding the PV of a future cash flow and is the reciprocal, or reverse of compounding. 5.

### Stocks, bonds options and futures calculation problems

1. How much will you have after 6 years if you invest \$15,000 at 8% per year compounded annually? Quarterly? 2. How much you need to invest now at 8% interest rate compounded semiannually in order to have \$10,000 in 5 years from now? 3. Find the present value of \$12,000 due four years from now if rate of interest is 6.0% p

### What is the present value of each bond?

You are the owner of 100 bonds issued by Euler, Ltd. These bonds have 8 years remaining to maturity, an annual coupon payment of \$80, and a par value of \$1,000. Unfortunately, Euler is on the brink of bankruptcy. The creditors, including yourself, have agreed to a postponement of the next 4 interest payments (otherwise, the ne

### Cumulative Voting, Dividends, Convertible

Problem 4 is cumulative voting problem 16 is preferred stock in arrears problem 7 is stock split and stock dividend problem 16 is dividends and stockholder wealth maximization problem 19-4 price of a convertible bond See attached file for full problem description.

### Cost of Debt, Cost of Equity, and WACC for Wild Widgets, Inc.

If Wild Widgets, Inc., (WWI) were an all-equity firm, it would have a beta of 0.9. WWI has a target debt-to-equity ratio of 0.50. The expected return on the market portfolio is 16%, and Treasury bills currently yield 8% per annum. WWI one-year, \$1,000 par value bonds carry a 7% annual coupon and are currently selling for \$972

### Current yield, Capital Gain, Per Share Price

Please show how to calculate the answer for the attached problems. Consider a \$1, 000 par value bond with a 7 percent annual coupon. The bond pays interest annually. There are 9 years remaining until maturity. What is the current yield on the bond assuming that the required return on the bond is 10 percent? Beck Company,

### O'Meara, Inc.

O'Meara Inc plans to issue 6 million of perpetual bonds. The face value of each bond is \$1,000. The semi-annual coupon on the bonds is 4.5%. Market interest rates on one-year bonds are 8%. With equal probability, the long-term market interest rate will be either 12% or 6% next year. Assume investors are risk-nuetral. a) IF

### Capital Budgeting Technique

1. As of December 1999, Amazon.com had never paid a dividend and the market value of its stock was \$37 billion. Does this invalidate the dividend discount model? Why or why not? 2. Which capital budgeting technique is consistent with maximizing shareholder wealth and why? 3. WACC is also referred to by 3 other names.

### Help with Homework Questions

(See attached file for full problem description)

### WACC caculations

A firm has a capital structure with 40% debt, 50% equity, and 10% preferred stock. If the following information is given, calculate company's WACC. YTM on firm's bond is 7.2% Beta is 1.2; risk free rate 5%; market risk premium is 5% Preferred stock pays dividend of \$8 and sells for \$100

### Bond Pricing

A semiannual 3-year bond with the coupon of 6.5% has a YTM of 8%. Determine what price an investor should be willing to pay for this bond. (Hint: since the bond is semiannual, pay close attention to coupon payments, periods, and interest rate to be used for discounting bond cashflows; If the bond is currently trading at \$935.50,

### Problem Set

1. Which is the best approach to common stock valuation and why? 2. Which capital budgeting technique is consistent with maximizing shareholder wealth and why? 3. What role does depreciation play in break-even analysis based on accounting flows? Based on cash flows? Which perspective is longer term in nature? 4.

### Econ question

Based on risk-return tradeoffs observable in the financial marketplace, which of the following securities would you expect to offer higher expected returns than corporate bonds? a. U.S. Government bonds b. municipal bonds c. common stock d. commercial paper e. none of the above

### Depriciation and Financial Accounting

A) The balance sheet of the first chemical plant is given in the attached file. If annual sale is \$400,000, profit before income tax is \$200,000, and the corporate tax rate is 50%, compute the return-on-total-assets ratio and the inventory-turnover ratio. b) Define the inventory-turnover ratio and identify its two major inc

### Economic Reasonings Questioning

1. Should any government body; local, state, or federal, be involved in setting prices? Why or Why Not? Formulate your answer as if you were responding to this question by someone who is not familiar with economics. 2. Put yourself in the position of a wheat farmer in the United States. What type activity would you lik

### Problems

Please show calculations and walk through the process to obtain a solution. 1} A 10-year Corporate bond is issued with a face value of \$100,000, paying interest of \$2,500 semi-annually. If market yields decrease shortly after the T-bond is issued, what happens to the bond's: a. price?

### 4 problems

1. Ginko Inc. has bonds outstanding that mature in 20 years. The bonds have \$1000 par value, pay interest annually at a rate of 10 percent, and have a current selling price of \$875.25. What is the yield to maturity? 2. A share of common stock just paid a dividend of \$3.25 per share. The expected long-run growth rate for th

### Multiple choice

MULTIPLE CHOICE: 1. Money functions as: a. store of value b. unit of account c. medium of exchange d. all of the above 2. In the United States the M1 money supply is comprised of: a. coins, paper currency, and checkable deposits. b. currency, checkable deposits, and government bonds. c. coins, paper currency, checka

### Capital or not

1) Which of the following are capital and which are not. Explain a) video poker game machine at a local bar that takes quarters. b) a \$10 bill c) A college education d) The Golden Gate Bridge. e) The shirts on the rack at Sears. f) A government bond. g) The Empire State Buliding. h) A savings account

### Foreign investment

What happens when a country such as Japan dumps American Bonds? What happens to the exchange rate? What happens to the money supply? What happens to the bond prices and yields/interest rates? thanks!

### Description of The Federal Reserve

In principle could the Federal Reserve conduct monetary policy through the purchase and sale of stocks on the New York Stock Exchange? Do you see any possible drawbacks to such a policy. Suppose the Federal Reserve purchased gold or foreign currency. How would this purchase affect the domestic money supply?

### Fed Funds rate, 10 Year T-bill, Mortgage Rate relationship

What is the relationship between the Fed funds rate, the 10 year (US) T-bill and the Mortgage rate? If the fed funds rate goes up, what exactly is affected? I know it's very short term investments, but what exactly? is it credit card rates? (examples please) Then, what is expected to happen to the 10 Year T-bill? Why?

### Contemporary Economics

Contemporary Economics 1. Tuition at Matchbook Cover Tech was \$9,000 per semester and enrollment was 5,500 in 1995. By 2005, tuition had fallen to \$6,000 and enrollment to 2,800. Does this mean that the demand curve for education at Matchbook Cover Tech is positively sloped with regard to price (i.e., that the own price c

### Basic Macroeconomics question

In the context of a closed economy IS-LM model; (a) Under what circumstances would the following have no effect of the level of output? i. An increase in government spending. ii. An open market purchase of bonds, from the public. (b) Under what circumstances would the following have no effect on the rate of interes

### Foreign Exchange

Consider a 1-year riskless Canadian bond and a 1-year riskless Japanese bonds. The interest rates on the Canadian bond and the Japanese bond are denoted by iCADt and iYent, respectively. The current spot rate is EYen/CADt, and the forward rate is FYen/CADt. The investors' expected spot rate in 1 year is Ee Yen/CADt+1. Assume t

### Portfolio Risk, Return and Standard Deviation

See the attached file. Question 1: a) Is it possible to increase return and decrease risk of a portfolio at the same time? b) Why do investors buy common stocks instead of investing all their money in bonds and t bills. Question 2: Use the attached table table to answer - A) If the investor allocates 30% of his mo

### Corporate Finance: WACC, Beta, cost of equity using CAPM

Question 1: The AI corporation has a \$150 M worth of common stock on which investors require a 17% rate of return. It also has \$35 M in bonds that offer a 7% return. a) Compute the WACC assuming that AI is subject to a 40% tax rate. b) Re-compute the WACC assuming that the firm has \$85 M in debt and \$100 M in stock. c