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Looking for the answer to part b. a. Several years ago, Castles in the Sand Inc. issued bonds at face value of $1,000 at a yield to maturity of 5.0%. Now, with 5 years left until the maturity of the bonds, the company has run into hard times and the yield to maturity on the bonds has increased to 10%. What is the price of the bond now? (Assume semiannual coupon payments.) (Do not round intermediate calculations. Round your answer to 2 decimal places.) Bond price $ 806.95 b. Suppose that investors believe that Castles can make good on the promised coupon payments but that the company will go bankrupt when the bond matures and the principal comes due. The expectation is that investors will receive only 90% of face value at maturity. If they buy the bond today, what yield to maturity do they expect to receive? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
The Wall Street Journal reports that the current rate on 5-year Treasury bonds is 2.50 percent and on 10-year Treasury bonds is 4.65 percent. Assume that the maturity risk premium is zero. Calculate the expected rate on a 5-year Treasury bond purchas..
Assume that CAPM is valid. A share of stock is now selling for $105. It will pay a dividend of $7 per share at the end of the year. Its beta is 1. What do investors expect the stock to sell for at the end of the year? Assume the risk-free rate is 7% ..
(Bond Valuation) Crawford Inc. has two bond issues outstanding, both paying the same annual interest of $85, called Series A and Series B. Series A has a maturity of 12 years, whereas Series B has a maturity of 1 year. Why does the longer-term (12-ye..
Suppose that a firm has, as of this year, an Earnings Before Interest and Taxes of $117 million, Depreciation of $10 million, has bought $25 million in machinery, has sold $12 million in old machinery for cash, has had an increase in Accounts Receiva..
An investor wants to form a two asset portfolio consisting of Treasury bills with a return of 2.5% and a risky portfolio with an expected return of 15.2% and a standard deviation of 16%. The investor wants the expected return of the two asset portfol..
imagine you have created a new service or product. using relevant entrepreneurship models including management
Builtrite is considering purchasing a new machine that would cost $60,000 and the machine would be depreciated (straight line) down to $0 over its five year life. At the end of five years it is believed that the machine could be sold for $15,000. The..
The preferred stock of Denver Savings and Loan pays an annual dividend of $5.70. It has a required rate of return of 6%. Compute the price of the preferred stock.
An investment project has annual cash inflows of $9,000, $8,500, $8,000, and $7,300, and a discount rate of 10 percent. If the initial cost is $23,700, the discounted payback period for these cash flows is _______ years.
Internal rate of return. ABC firm sells extended warranties for its washing machines. When ABC sells the warranty, it receives cash upfront, but later ABC must cover any repair costs that arise. ABC is considering a warranty for a new line of TVs. A ..
What is the feature of a corporate bond that protects the purchaser from moral hazard on the part of the borrower?
You purchased one EAW, Inc. 6 percent coupon bond one year ago for $1,020. The bond makes annual payments and matures four years from now. You sell the bond today when the required return is 5 percent. The inflation rate was 2.8 percent over the past..
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