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A bond was issued five years ago with 20 years to maturity carrying 8 percent coupon rate and it was issued at par. The issuer’s financial performance has deteriorated significantly and the premium for the possibility of bankruptcy has changed from 3 percent to 5 percent. What is the current price of this bond if the interest is paid annually?
All answers for rate of return/interest rate must be expressed as a percentage and calculated to two places after the decimal point.
A corporate bond has a face value of $1,000 and a coupon rate of 5%. The bond matures in 15 years and has a current market price of $950. If the corporation sells more bonds it will incur flotation costs of $25 per bond. If the corporate tax rate is ..
Suppose that you are considering making a working capital loan to a business customer of your bank. You do the cash to cash cycle analysis and determine that the firm's daily average cost of goods sold is $ 50,000. What does this mean?
There is an expression that it is best to operate a business using “other people’s money.” Given that other people’s money is reflected in accounts payable, explain how accounts payable affects the external funds required (EFR).
Kevin hams plans to borrow 8000 for five years. The loan will be repaid with a single payment after five years, and the interest on the loan will be computed using the simple interest method at an annual rate of 6 percent. How much will Kevin have to..
Both Bond Sam and Bond Dave have 10 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has three years to maturity, whereas Bond Dave has 18 years to maturity. Percentage change in price of Bond Dave?
You own a bond with the following features: 7 years to maturity, face value of $1000, coupon rate of 2% (annual coupons) and yield to maturity of 8.2%. If you expect the yield to maturity to remain at 8.2%, what do you expect the price of the bond to..
Mr. and Mrs. Lukert own a sole proprietorship and have no other source of income. This year, they paid $11,674 Massachusetts income tax, all of which is attributable to their business profit. Can they deduct their state income tax as a business expen..
You plan to deposit $2,100 per year for 6 years into a money market account with an annual return of 3%. You plan to make your first deposit one year from today. What amount will be in your account at the end of 6 years? You and your wife are making..
Well researched data and solid assumptions are at the heart of good budgets. How should a Manager go about creating assumptions for their budget that will ensure it gets approved? What should a Manager look for when evaluating the validity of assumpt..
Once an airline publishes its schedule, the short run marginal cost of an additional passenger is very low. Explain why the operation of revenue management systems may set some ticket prices below that needed to cover fully-allocated cost.
A company has issue one- and two-year bonds providing 8% coupons, payable annually. The yields on the bonds (expressed with continuous compounding) are 6.0% and 6.6%, respectively. Risk-free rates are 4.5% for all maturities. The recovery rate is 35%..
Enter the missing values in the financial statements. Assume the company started operations January 1, 2013, and all transactions involve cash.
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