User Account

All Pages

Question regarding the three treasury issues

Assignment Help Accounting Basics
Reference no: EM13834621

1. Consider the prices of the following three Treasury issues as of February 24, 2012

6.80

May 17

118.50000

118.56250

-15

5.34

8.670

May 17

115.68750

115.68750

-7

5.30

12.420

May 17

140.78125

140.96875

-17

5.38

The bond in the middle is callable in February 2013. What is the implied value of the call feature?

2. Charles River Associates is considering whether to call either of the two perpetual bond issues the company currently has outstanding. If the bond is called, it will be refunded, that is, a new bond issue will be made with a lower coupon rate. The proceeds from the new bond issue will be used to repurchase one of the existing bond issues. The information about the two currently outstanding bond issues is

Coupon rate

 

7

%

 

8

%

Value outstanding

$

126,000,000

 

$

133,000,000

 

Call premium

 

6.5

%

 

8.5

%

Transaction cost of refunding

$

11,600,000

 

$

13,500,000

 

Current YTM

 

6.25

%

 

7.1

%

The corporate tax rate is 35 percent.

What is the NPV of the refunding for each bond?

Bond A ?

Bond B ?

Reference no: EM13834621

Questions Cloud

What is the npv of this project : The manager of the new project has found that the average return on equity is 20%, and the average debt-to-equity ratio is 1.00, in the wine industry. All the debt in this industry is viewed as default free by the market. The risk free rate is 4%, th..
A standard normal distribution : One way to find probabilities from a Standard Normal Distribution is to use probability tables, which are located inside the front cover of your textbook. According to the table, what is the probability when z ≤ -1.75?  The probability when z ≤ 1...
What is the convertible bonds conversion premium : A $1000 per value convertible bond has a conversion price of $50. It is currently selling for $1,120 despite the fact that the bond's coupon rate and the market rate are equal. The common stock obtained upon conversion is selling for $54 per share. W..
Universal burger is concerned about product waste : Universal Burger is concerned about product waste, so they sampled their burger waste record from the past year with the following results:  Number of Burgers Discarded During a Shift:  2, 16, 4, 12, 19, 29, 24, 7, 19, 22, 14, 8, 24, 31, 18, 20, 16, ..
Question regarding the three treasury issues : 1. Consider the prices of the following three Treasury issues as of February 24, 2012
Explain what are the different types of biofilms : What are the mechanisms by which bacteria form biofilms. What are the different types of biofilms. What is the structure of a biofilm
Administrator competencies and paths to leadership : Administrator Competencies and Paths to Leadership
Western clothing company produces denim jeans : 1) Western Clothing Company produces denim jeans. Each month the company incurs a fixed cost of $10,000 and variable cost of $8 per pair of jeans. Demand for the jeans depends on the price (P) according to the following relationship: Demand = 1,500 -..
Calculate the weighted average of cost of capital. : Based on the information below, calculate the weighted average of cost of capital. Great Corporation has the following capital situation. -Debt: One thousand bonds were issued five years ago at a coupon rate of 10%. They had 25-year terms and $1,000 ..

Reviews

Write a Review

Accounting Basics Questions & Answers

  How much control does fed have over this longer real rate

Hubbard argues that the Fed can control the Fed funds rate, but the interest rate that is important for the economy is a longer-term real rate of interest.   How much control does the Fed have over this longer real rate?

  Coures:- fundamental accounting principles

Coures:- Fundamental Accounting Principles: - Explain the goals and uses of special journals.

  Accounting problems

Accounting problems,  Draw a detailed timeline incorporating the dividends, calculate    the exact Payback Period  b)   the discounted Payback Period. the IRR,  the NPV, the Profitability Index.

  Theory of interest - term structure of interest rates

Term Structure of Interest Rates

  Write a report on internal controls

Write a report on Internal Controls

  Prepare the bank reconciliation for company

Prepare the bank reconciliation for company.

  Cost-benefit analysis

Create a cost-benefit analysis to evaluate the project

  Theory of interest

Theory of Interest: NPV, IRR, Nominal and Real, Amortization, Sinking Fund, TWRR, DWRR

  Liquidity and profitability

Distinguish between liquidity and profitability.

  What is the expected risk premium on the portfolio

Your Corp, Inc. has a corporate tax rate of 35%. Please calculate their after tax cost of debt expressed as a percentage. Your Corp, Inc. has several outstanding bond issues all of which require semiannual interest payments.

  Simple interest and compound interest

Simple Interest, Compound interest, discount rate, force of interest, AV, PV

  Capm and venture capital

CAPM and Venture Capital

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!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

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