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1) Bond Valuation and Interest Rate Risk
The Garraty Company has two bond issues outstanding. Both bonds pay $100 annual interest plus $1,000 at maturity. Bond L has a maturity of 15 years, and Bond S has a maturity of 1 year.
What will be the value of each of these bonds when the going rate of interest is (1) 5%, (2) 8%, and (3) 12%? Assume that there is only one more interest payment to be made on Bond S.
Why does the longer-term (15-year) bond fluctuate more when interest rates change than does the shorter-term bond (1 year)?
2) Yield to Maturity and Current Yield
You just purchased a bond that matures in 5 years/ The bond has a fave value of $1,000 and has an 8% annual coupon. The bond has a current yield of 8.21%. What is the bond’s yield to maturity?
A company currently pays a dividend of $2.75 per share (D0 = $2.75). It is estimated that the company's dividend will grow at a rate of 19% per year for the next 2 years, then at a constant rate of 6% thereafter.
Calculate the cost of each capital component, after-tax cost of debt, cost of preferred, and cost of equity with the CAPM method.
Future Value. You are hoping to buy a house in the future and recently recieved an inheritance of $22,000. You intend to use your inheritance as a down payment on your house. If you put your inheritance in an account that earns 7 percent interest com..
Dan is going to buy a 19-year bond that pays a coupon rate of 11.56% per year, and has a $1,000 par value. The bond currently priced at $1,326.92? What is the yield to maturity of this bond? Assume annual coupon payments.
Your company is considering a new project that will require $985,000 of new equipment at the start of the project. The equipment will have a depreciable life of 9 years and will be depreciated to a book value of $157,000 using straight-line depreciat..
Common stockholders have a residual claim to income. Bondholders may force a corporation into bankruptcy for failure to make interest payments. Common stockholders are legally entitled to some dividend.
Company A has sales of 4,481,550; income tax of 531,834; the selling, general, and admin expenses of 267,714; depreciation of 380,725; costs of goods sold of 2,496,660; and interest expense of 178,814. Calculate the amount of the firm's after-tax cas..
Calculate the total dollar-day float for the month, calculate the average dollar-day float, calculate the average collection float in days and calculate the annual cost of float assuming an annual opportunity costs of 6%.
You own a portfolio that is 32 percent invested in Stock X, 20 percent in Stock Y, and 48 percent in Stock Z. The expected returns on these three stocks are 6 percent, 19 percent, and 15 percent, respectively. What is the expected return on the portf..
A small business owner visits her bank to ask for a loan. The owner states that she can repay a loan at $3,000 per month for the next three years and then $6,000 per month for two years after that. If the bank is charging customers 10.00 percent APR,..
1. Evaluate the advantages and disadvantages of the various decision-making tools listed (e.g., regular payback, discounted payback, net present value (NPV), internal rate of return (IRR), and modified internal rate of return).
Quetzalcoatl and Tonantzin each take out a 17-year loan of $L. Quetzalcoatl repays his loan using the amortization method, at an annual effective rate of i. He makes an annual payment of $500 at the end of each year.
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