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Newtone Company and Oldtone Company are identical in every way except their capital structures.
Newtone, an all equity firm has 5,000 shares of stock outstanding: each share sell for $20.
Oldton uses leverage in its capital structure. The market value of Oldtone’s debt is $25,000, and the cost of debt is 12%. Each firm is expected to have earnings before interest of $350,000. Neither firm pays taxes. What is the value of Netone stock? What is the value of Oldtone stock?
Last year, you purchased a $1,000 par value bond with a 7.5% annual coupon and a 20-year maturity. At the time of the purchase, it had an expected YTM of 8%. After receiving the coupon, you sold the bond today for $930. What is your return rate in on..
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O'Brien Ltd.'s outstanding bonds have a $1,000 par value, and they mature in 25 years. Their nominal yield to maturity is 9.25%, they pay interest semi annually, and they sell at a price of $975. What is the bond's nominal coupon interest rate?
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