Reference no: EM13335532
(1) Morin Company's bonds mature in 8 years, have a par value of $1,000, and make an annual coupon interest payment of $65. The market requires an interest rate of 8.0% on these bonds. What is the bond's price?
(2) In order to accurately assess the capital structure of a firm, it is necessary to convert its balance sheet figures from historical book values to market values. KJM Corporation's balance sheet (book values) as of today is as follows:
Long-term debt (bonds, at par) $23,500,000
Preferred stock 2,000,000
Common stock ($10 par) 10,000,000
Retained earnings 4,000,000
Total debt and equity $39,500,000
The bonds have a 7.0% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 10 years from today. The yield to maturity is 10%, so the bonds now sell below par. What is the current market value of the firm's debt?
a. $17,436,237
b. $17,883,320
c. $18,330,403
d. $7,706,000
e. $7,898,650
(3) Malko Enterprises' bonds currently sell for $1,050. They have a 6-year maturity, an annual coupon of $75, and a par value of $1,000. What is their current yield?
(4) Kay Corporation's 5-year bonds yield 6.20% and 5-year T-bonds yield 4.40%. The real risk-free rate is r* = 2.5%, the inflation premium for 5-year bonds is IP = 1.50%, the default risk premium for Kay's bonds is DRP = 1.30% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t - 1) x 0.1%, where t = number of years to maturity. What is the liquidity premium (LP) on Kay's bonds?
a. 0.36%
b. 0.41%
c. 0.45%
d. 0.50%
e. 0.55%
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