Earned on comparable securities

Assignment Help Financial Management
Reference no: EM131077838

In the section on the yield to call, a bond pays annual interest of $80 and matures after ten years. The bond is valued at $1,147 if the comparable rate is 6 percent and the bond is held to maturity. If, however, an investor expects the bond to be called for $1,050 after five years, the value of the bond would be $1,122. Investor A expects the bond to be called and investor B expects the bond not to be called. Investor A sells the bond to B for $1,122. What is the annual return earned by B if the bond is not called? Why is this yield greater than the 6 percent earned on comparable securities?

Reference no: EM131077838

Questions Cloud

European-style options on foreign currencies trade : European-style options on foreign currencies trade at the Philadelphia Exchange. A call option on sterling with an exercise price of 0.925 £/$ and a time to expiration of 3 months has a price of 0.0125 £/$. Is there an arbitrage opportunity? If there..
Bank pays quoted annual interest rate : A bank pays a quoted annual (simple) interest rate of 8 percent. However, it pays interest (compounds) daily using a 365-day year. What is the effective annual rate of return?
Effective in creating and monitoring an operating budget : Discuss which financial management practices are most effective in creating and monitoring an operating budget.
Evaluating capital budgeting project : Conventional corporation is evaluating a capital budgeting project that will generate $600,000 per year for the next 10 years. The project costs $3.6 million and conventional's required rate of return is 11 percent. Should the project be purchased?
Earned on comparable securities : In the section on the yield to call, a bond pays annual interest of $80 and matures after ten years. The bond is valued at $1,147 if the comparable rate is 6 percent and the bond is held to maturity. What is the annual return earned by B if the bond ..
What is the rate of return on this security : The preferred stock of AKA Enterprises pays an annual dividend of $8.50 and sells for $55.74 a share. What is the rate of return on this security?
Yield on the bond is per annum with continuous compounding : Which of the following is closest to the duration of a 2-year bond that pays a coupon of 8% per annum semiannually? The yield on the bond is 10% per annum with continuous compounding.
How do marketers ensure customers can find offerings : How do marketers ensure customers can find offerings? Why can't the term marketing be used to refer to advertising activities performed by a marketer?
Calculate the vibrational and rotational zero : The force constant for the D2 molecule is 577 N m^-1. Calculate the vibrational and rotational zero point energy for this molecule. If this amount of energy will be converted to translational energy, how fast would this molecule be moving?

Reviews

Write a Review

Financial Management Questions & Answers

  What is expected share price as consequence of this decision

In the past, Sunnyfax Publishing paid out all its earnings as dividends. When the stock market opened for trading today, Sunnyfax's share price was $38 and earnings for the year ending today are $3 per share. If the reinvestment does not affect Sunny..

  How expensive home mortgage can you afford

Suppose you have budgeted $ 1175 a month towards a mortgage. If you are offered a 30 year mortgage at an interest rate of 7.5%, how expensive a home mortgage can you afford?

  What is your portfolio return

Portfolio Return At the beginning of the month, you owned $6,200 of Company G, $8,500 of Company S, and $2,000 of Company N. The monthly returns for Company G, Company S, and Company N were 7.75 percent, -1.55 percent, and -.18 percent. What is your ..

  Recently issued two types of bonds

Pierre Imports recently issued two types of bonds. The first issue consisted of 10-year straight debt with a 9 percent annual coupon. The second issue consisted of 10-year bonds with a 8 percent annual coupon and attached warrants. Discuss 3 advantag..

  About the retirement plan

You are considering your retirement, and would like to have accumulated $1,839,829 by the time you retire in 27 years. If you anticipate that your average compounded rate of return over the 27 years until retirement will be 12%, how much will you nee..

  According to the constant dividend growth model

A share of stock will pay a dividend of $1.1 one year from now, with dividend growth of 4.4 percent thereafter. According to the constant dividend growth model, if the required return is 14.7 percent, what should the value of the stock be 2 years fro..

  Issue more shares and use the proceeds to lower its debt

Select the choice below that will make the quick ratio go up: Firm XYZ will issue more shares and use the proceeds to lower its debt. Suppose that this does not change operating income, interest rates, tax rates, or total assets. Which statement is m..

  How long will it take to double your money

If you deposit money today in an account that pays 14.5% annual interest, how long will it take to double your money? Round your answer to two decimal place

  What is the amount of capital spending

Awnings Incorporated has beginning net fixed assets of $560 and ending net fixed assets of $720. Assets valued at $210 were sold during the year. Depreciation was $50. What is the amount of capital spending?

  Effective annual rate on your firms borrowings is closest

Your firm needs to invest in a new delivery truck. The life expectancy of the delivery truck is five years. You can purchase a new delivery truck for an upfront cost of $200,000, or you can lease a truck from the manufacturer for five years for a mon..

  Tax rate on all income to ease the calculations

The Bookbinder Company has made $150,000 before taxes during each of the last 15 years, and it expects to make $150,000 a year before taxes in the future. However, in 2013 the firm incurred a loss of $650,000. Treasury. Show how it calculates this cr..

  What is the firms weighted cost of capital

Tinker bell has a capital structure of $60,000 in debt and $140,000 in equity. What is the firm's weighted cost of capital if the marginal pretax cost of debt is 12 percent, the firm's average pretax cost of debt outstanding is 8%, and the cost of eq..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd