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Venture Corp issued 7 year 5% bonds due 2023 at par. This bond pays interest on a semi-annual basis. However, right after Venture issued the bonds, the Company missed its first earnings and at the same time, the interest rate environment changed. Now the market’s required return has increased to 9% (all else being equal). In this current environment, what is the trading price of the bond? Is this bond trading at a discount or premium? Now suppose you find out that the Venture Corp bonds are callable in 3 years at 101% (or $1010). Assuming the trading price you found above, what is the bond’s yield to call? Is the yield to call or yield to maturity higher? Why? (Hint: the yield to call is the yield you get if you hold the bond until the call date and you get paid the call price ) Venture Corp is considering two identical 7year bonds except one had a call and the other was noncall. Which one should be more expensive( higher yield) to issue for Venture Corp and why? (Hint think about the motivation for exercising the call and its impact on bondholders)
Central City Construction (CCC) needs $1 million of assets to get started, and it expects to have a basic earning power ratio of 15%. CCC will own no securities, so all of its income will be operating income. Assuming a 30% tax rate on all taxable in..
Davidson Corp has a $1000 par value bond outstanding paying annual interest of 6.5%. The bond matures in 25 years. If the present yield to maturity for this bond is 10%, calculate the current price of the bond. List i and n in your solution.
ABC is a manufacturer. Long term debt, with an incremental borrowing rate of 6% Capital stock with the following information. Risk free rate 4%, market rate of return 12%, Beta 1.25. Compute the weighted average cost of capital (WACC)? Using CAPM com..
You currently have $67,000 in an interest-earning account. From this account, you wish to make 20 year-end payments of $5,000 each. What annual rate of return must you make on this account to meet your objective?
You are interested in investing in the stock of XYZ Company. The stock currently sells for $40 per share and pays a yearly dividend of $1.50 per share. You have $10,000 to invest. How many shares could you buy, ignoring brokerage commissions and othe..
The Walgreen Corporation is contemplating a new investment that it plans to finance using one-third debt. the firm can sell new $1000 par value bonds with a 15 year maturity at a price of $948 that carry a coupon interest rate of 12.3 percent that is..
A loan of 100,000 is payable over five years with monthly payments of 60,000 commencing one month after the inception date. The loan repayment is 2,000 per month and the nominal rate 10 per cent. How much capital remains at the end of five years? If ..
Brower, Inc. just constructed a manufacturing plant in Ghana. The construction cost 8.5 billion Ghanian cedi. Brower intends to leave the plant open for three years. During the three years of operation, cedi cash flows are expected to be 3 billion ce..
Essary Enterprises has bonds on the market making annual payments, with seven years to maturity, a par value of $1,000, and selling for $950. At this price, the bonds yield 6 percent. What must the coupon rate be on the bonds?
What is the value of a share of a firm's stock when the firm is expected to pay a $2.80 per share dividend at the end of each year and the annual discount rate is 7.5 percent?
The prices and other information of two stocks in the market are listed in the table: Stock BHP: Price at year beginning ($50) Forecasted price at year end ($52) Forecasted dividend in the year ($3) Variance of returns (9%) Stock CBA: Price at year b..
Ghana cedes has depreciating against all major foreign trading currencies in recent time. Use the experience of the Ghanaian firms to suggest the need for exchange rates forecasting in Ghana. Discuss with examples the three main types of arbitrage. D..
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