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Bond value and changing required returns Midland Utilities has outstanding a bond issue that will mature to its $1,000 par value in 12 years. The bond has a coupon interest rate of 11% and pays interest annually.
a. Find the value of the bond if the required return is (1) 11%, (2) 15%, and (3) 8%.
b. Plot your findings in part a on a set of “required return (x axis)–market value of bond (y axis)” axes.
c. Use your findings in parts a and b to discuss the relationship between the coupon interest rate on a bond and the required return and the market value of the bond relative to its par value.
d. What two possible reasons could cause the required return to differ from the coupon interest rate?
Suppose the Japanese yen exchange rate is ¥110 = $1, and the British pound exchange rate is £1 = $1.55. What is the cross-rate in terms of yen per pound? Suppose the cross-rate is ¥175 = £1. What is the arbitrage profit per dollar?
Folic acid inc. has $20 million in earnings pays $2.75 million in interest to bondholders and $1.80 million in dividends to preferred stockholders. a) What are the common stockholders residual claims to earnings? b) What are the common stockholders l..
What is revenue for the firms? What is gross margin?
You run a mutual fund and you have decided that the most that Sears stock is worth is $20 and you plan on selling the stock when it reaches that point. What option strategy could you take to make a profit on your planned trade?
Tanghshan Mining has 100,000 shares outstanding and just declared a 3 for 2 stock split. Before the announcement, the firm's shares were trading at $50.00 per share. After the stock divided, the firm's shares should trade at ________ per share.
Assume that the inflation rate during the last year was 1.18 percent. US government T-bills had the nominal rates of return of 3.15 percent. What is the real rate of return for a T-bill? Round the answer to two decimal places in percentage form.
Temple Corp. is considering a new project whose data are shown below. The equipment that would be used has a 3- year tax life, would be depreciated by the straight-line method over its 3-year life, and would have a zero salvage value. No change in ne..
describes the service program for helping customers keep
Baker decided not to pursue limit pricing as described in the previous problem. Now they find themselves with a competitor, which limits their profit to $4 million per year. Ignoring legal considerations, is predatory pricing a profitable strategy? W..
I am looking for thoughtful responses. So, one word questions (why?) and/or asking for basic information (what is your name?) don't qualify.
Your firm has net income of $338 on total sales of $1,420. Costs are $780 and depreciation is $120. The tax rate is 35 percent. The firm does not have interest expenses. What is the operating cash flow?
Garnet & Gold (G&G) is the world’s largest publications firms. Four years ago G&G issued a $1,000 par value bond. The bond had the following characteristics: Calculate the yield to call on this bond.
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