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# Bonds

### Finance Questions

These are a few questions I did not quite understand. Would you please assist? * If a bank loan officer were considering a company's request for a loan, which of the following statements would you consider to be CORRECT? (Points: 10) The lower the company's TIE ratio, other things held constant, the lower the inter

### Risk aversion and stocks' prices and earned rates of return: (a) how a decrease in risk aversion would affect stocks' prices and earned rates of return, (b) how this would affect risk premiums as measured by the historical difference between returns on stocks and returns on bonds, and (c) the implications of this for the use of historical risk premiums when applying the SML equation.

In Chapter 7 (Unit 5), we saw that if the market interest rate, rd, for a given bond increased, then the price of the bond would decline. Applying this same logic to stocks, explain (a) how a decrease in risk aversion would affect stocks' prices and earned rates of return, (b) how this would affect risk premiums as measured by t

### Clark Company - Bank Reconciliation

Resource: Fundamental Accounting Principles Problem 8-4A including the Analysis Component Use the spreadsheet, Appendix B, to complete problem 8-4A. Use the tabs labeled SP08-04A and Given P08-04A The following information is available to reconcile Clark Company's book balance of cash with its bank statement cash balan

### Offsetting fiscal policy with monetary policy

Consider that the: The multiplier =3 the money multiplier = 6 income multiplier with respect to the money supply = 4 The government increase spending by 12 billion but because the economy is operating at full capacity it wants to use monetary policy to offset the impact of this increase will have on income. a) does the

### Bond vs. Loan to Fund a Purchase

Would I be better off borrowing 208 million at 7% interest for 10 years or 8% interest for 7 years with a 1% fee? Please calculate both options for me.

### Social Security Reform

Suppose the following Social Security reform became law: All current Social Security recipients will continue to receive their benefits, but no increase will be made other than cost-of-living adjustments. US citizens, between age 40 and retirement, who are not yet on Social Security, can opt to continue with the current sy

### Hannon Home Products, Inc., recently issued \$430,000

Hannon Home Products, Inc., recently issued \$430,000 worth of 8 percent convertible debentures. Each convertible bond has a face value of \$1,000. Each convertible bond can be converted into 28 shares of the firm's common stock anytime before maturity.The current price of Hannon's common stock is \$31.25 per share, and the mar

### Cost of debt and equity.

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 percent, and Treasury bills currently yield 8 percent per annum.WWI one-year, \$1,000 par value bonds carry a 7 percent annual coupon and are currentl

### Multiple choices

Dear Tutor, I don't trust myself so I would like to get a second opinion on these. Please answer the multiple choice questions and show any work you needed to do to obtain a given answer, if needed. Thank you ____ 1. Which of the following could explain why a business might choose to organize as a corporation rather

### Beta, present value, Net Present Value, Time Value of Money, Bonds, YTM, discount rate

15. If a firm has a beta of 1.0, it is safe to make the following conclusion regarding the relative risk of the firm to the market risk in general: a. The firm is about as risky as the market. b. The firm is more risky than the market. c. The firm is less risky than the market. d. The beta of the firm does not allow any co

### Multiple Choice - Finance

1. The primary objective of business financial management is to a. maximize total corporate profit. b. maximize net income. c. minimize the chance of losses. d. maximize shareholder wealth (i.e. stock price). 2. Theoretically, stock price is not directly d

### Computing Steps

Problem: The balance sheets of Hutter Amalgamated are shown below. If the 12/31/2005 value of operations is \$756 million, what is the 12/31/2005 value of equity? [ANSWER: \$416 MILLION] * [Please show the computing steps by which the answer to this problem was derived]. Balance Sheets, December 31, 2005 (Millions

### Optimal Portfolio Decisions

The James Bond Fund is a mutual fund (open-end investment company) with an objective of maximizing income from a widely diversified corporate bond portfolio. The fund has a policy of remaining invested largely in a diversified portfolio of investment-grade bonds. Investment-grade bonds have high investment quality and receive a

### What drives bond prices?

1. Do normal demand/supply fluctuations move bond prices? 2. Or is it based on changes in the required yield (which is factored into the bond calculation, thus changing the prices) If it's based on 1. then to changes in required yield force people to buy and sell? What market forces change the required yield? Is this based

### Securities, bonds, preferred stock

1. True / False _______ Correlation is a measure of relationship between two securities. _______ Standard Deviation is calculated by taking the future values of present values. _______ A beta of 1.8 is less risky than the market. _______ Australia uses the Euro as their currency. _______ It's always

### Economics Questions

1. What is the Future Value at the end of 17 years of depositing \$1,750 into a Mutual Fund today, assuming the fund is expected to earn 12% a year? 2. You are considering the purchase of a bond with a semiannual coupon of \$40, Ten years to maturity, a face value of \$1,000, and a current market price of \$1,000. a. A

### Determining rate of interest

You are offered the opportunity to buy a note for \$12,800. The note is certain to pay \$2,000 at the end of each of the next 10 years. If you buy the note, what rate of interest will you receive.

### Interest Rate the Bond Offers

A zero-coupon bond which will pay \$1,000 in 10 years is selling today for \$422.41. What interest rate does the bond offer?

### How to journalize information for bond transactions

Prepare entries to record issuance of bonds, payment of interest, and amortization of bond discount using effective interest method.

### Finance: Yield to Maturity Problem

Which bond will have a higher yield to maturity, a \$1,000 face value bond, with a 5.0% coupon rate that sells for \$900; or a \$1000 face value bond, with a \$50 annual coupon that sells for \$1,050. Explain your choice.

### Prepare entries for issuance of bonds

Hurley Company issued \$400,000, 11%, 10-year bonds on January 1, 2006, for \$424,925. This price resulted in an effective interest rate of 10% on the bonds. Interest is payable semiannually on July 1 and January 1. Hurly uses the effective interest method to amortize bond premium or discount. Instructions: Prepare the jou

### Economic Slowdown of 2000

After the economic slowdown that started around the third quarter of 2000, the Fed lowered interest rates eleven times in the following year, 2001. What concerns would you have, if any, about the effort by the Fed to smooth out this economic recession?

### Calculate: Bond Price

Question: Midland Oil has \$1,000 par value bonds outstanding at 8 percent interest. The bonds will mature in 25 years. Compute the current price of the bonds if the present yield to maturity: a. 7 percent b. 10 percent c. 13 percent

### Monetary Analysis

Suppose the Federal Reserve surprises everyone by sharply raising the federal funds rate. Explain how this action is likely to affect the nominal interest rates on (i) three-month Treasury bills (ii) ten-year Treasury bonds (iii) ten-year AAA corporate bonds and (iv) ten-year junk bonds. Compare the sizes

### Corporate Bond

A corporate bond carries a coupon rate of 9 percent, has 10 years until maturity, and sells at a yield to maturity of 8 percent. a. What interest payments do bondholders receive each year? b. At what price does the bond sell?

### Financial Economics

4. Consider a bond paying a coupon rate of 6% per year semiannually (i.e. it pays \$30 every six months) when the market interest rate at all maturities is only 2.5% per half year. The bond has three years until maturity. a. What is the bond's price today? b. What will the bond's price be in six months after the next cou

### 1) If interest rate parity holds, what is the yield today on 1-year, risk-free Japanese securities? 2) If 9 percent after-taxes is the investors required return, what before-tax rate would the domestic bond need to pay to provide that after-tax return?

1) In the spot market, 1 U.S. dollar can be exchanged for 121 Japanese yen. In the 1-year forward market, 1 U.S. dollar can be exchanged for 125 Japanese yen. The 1-year, risk-free rate of interest is 5.2 percent in the United States. If interest rate parity holds, what is the yield today on 1-year, risk-free Japanese securiti

### Financial Economics

Your investment horizon is one year. You observe that the government is offering a completely safe one-year Treasury instrument with a 5 percent return. You also assume that the historical returns above give you the best available information about future expected returns, variances and covariances for the alternative asset cl

### Explaining and Calculating WACC

Please help with the following problem. A firm has 2,000,000 shares of common stock outstanding with a market price of \$2.00 per share. It has 2,000 bonds outstanding, each selling for \$1,200. The bonds mature in 15 years, have a coupon rate of 10% and pay coupons annually. The firm's beta is 1.2, the risk free rate is 5%, a