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Venture Corp issued 7 year 5% bonds due 2024 at par. This bond pays interest on a semi-annual basis. However, right after Venture issued the bonds, the Company seriously missed its first earnings and at the same time, the interest rate environment changed.
Now the market's required return has increased to 10% (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 103% (or $1030).
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 redeem the call price)
What was the arithmetic average annual return on large-company stocks in real terms?
Tri-City Grocers is a chain of grocery stores that just hired a new CFO. Which of the following actions would you expect this CFO to adopt given her statement that she wants to implement a more flexible financing policy for the firm?
What interest rate is the bank advertising (what is the rate of return of this investment)?
Frye Inc. is considering raising the new capital through issuing convertible bonds which will be sold at par, carry a coupon rate of 6% - annually paid, have 20-year maturity, and can be converted into 23 shares of stock. The bonds would be non calla..
What position in the stock is necessary to hedge the trader’s position at the time of the trade?
What kind of risk does the U.S. firm have? What kind of swap could be used to limit its risk?
Create a scenario named Current loan option, using amount of loan and interest rate as variable cells.
Calculate the weighted average cost of capital for the company, Lowe’s. As you learned, a firm considered less risky by investors has a lower cost of capital and higher firm value. Like individuals, firms can benefit from risk management.
The annual continuously compounded 6-month and 1-year zero rates are 3% and 4%, respectively. A 1.5-year bond that pays coupons of $2 every six months currently sells for $98.52. What is the 1.5-year zero rate with continuous compounding? Show the ca..
Lowell Inc. had an operating income of $2. 6 5 million, depreciation of $1. 3 0 million, and had a tax rate of 40%. The firm's expenditures on fixed assets were $0.4 and its exp enditure to increase net operating working capital was $0. 2 million. Ho..
Long Straddle: This strategy is when an investor purchases both a call and put option with the same strike price, underlying asset and expiration date simultaneously. An investor will often use this strategy when he or she believes the price of the u..
Dinklage Corp. has 6 million shares of common stock outstanding. The current share price is $85, and the book value per share is $8. The company also has two bond issues outstanding. The first bond issue has a face value of $65 million, a coupon rate..
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