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You will invest (not investing is not a choice) in one of two bond issues issued by the same company. Both mature in 2035 (25 years to maturity). Both have a $1000 par value. The company has an Aa3 credit rating by S&P. Both bonds are callable at $1050 beginning in 2020 (10 years hence) with a 10 year call window. Neither issue has a sinking fund. Bond A is a zero coupon bond, currently priced at $233.00. Bond B has a coupon rate of 5%, pays interest annually, and has a current market price of $872.16.
(A) As an investor, what factors influence your decision as to which bond to buy? Why?
(B) What differences from the investor perspective, if any, exist in the risks between the two bond issues? Based on that, are both bonds fairly priced in the market relative to each other (explain how you reached that conclusion?)?
On February 1, you purchase $10,000 face amount, and your broker charges a $25 commission. How much must you remit for the purchase?
Can you explain why the figure changes? If the interest rate doubles, would you expect the mortagage payment to double?
The firm purchase $700,000 of equipment during the year while increasing its inventory by $500,000 (with no corresponding increase in current liabilities). The marginal tax rate for Champagne is #0 percent. What is Champagne's free cash flow for 2..
Use the Library to go to the SBA US Government, Small Business Administration web site. There is a vast amount of information available on this site.
A stock has a beta of 1.20 and an expected return of 14 percent. A risk-free asset currently earns 3.0 percent. Calculate the expected return on a portfolio that is equally invested in the two assets?
A Corporation will pay a $2 per share dividend in one year. The dividend in 2 years will be $4 per share, and it is expected that dividends will grow at 5% per year thereafter.
Drywall Systems, Inc., is presently in discussions with its investment bankers regarding the issuance of new bonds. Compute the after-tax costs of financing with each of following alternatives.
Seaborn Co. has identified investment project with following cash flows. If the discount rate is 10 percent, what is present value of these cash flows? What is present value at 18% ? At 24%?
A company enters into a long futures contract to buy 200 ounces of gold for $1,278 per ounce. The initial margin is $4,000 and the maintenance margin is $1,000. What gold futures price per ounce will trigger a margin call?
The company adheres to a constant rate of growth dividend policy. What will one share of B&K common stock be worth 10 years from now if the applicable discount rate is 9 percent?
The bonds make semiannual coupon payments at a rate of 8.4 percent. If the current price of the bonds is $1,048.77, what is the yield that Trevor would earn by selling the bonds today?
What is the capital structure weight of the firm's debt if the tax rate is 35 percent?
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