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Assume the yield curve on "plain vanilla" default-free bonds is flat at 5%, and you are thinking of buying a default-free bond. Specifically, you're thinking of buying a bond issued by Risklessco, a company considered to be default-free by all major bond rating firms. You will select one of the following three bonds, all identical except for the special features listed: Face Value Maturity Coupon Rate (Paid Annually) Yield to Maturity Special Features Price A 1000 20 years 5.5% 5% None ? B 1000 20 years 5.5% 5% Callable Par C 1000 20 years 5.5% 3.5% Callable and Convertible into Risklessco Stock ?
A. Why is the yield on bonds A and B 5%? Why is the yield on bond C different?
B. What would be the price of Bond A?
C. If bond C is considered identical to bond B except for the conversion privilege, what is the value of the conversion privilege? Does the conversion privilege benefit the issuer of the bond or the purchaser? Is this consistent with the price you calculated for bond C?
D. Who does the callability provision benefit, the issuer or the purchaser? Is this consistent with the price you calculated for bond A?
What interest rate is the bank required by law to report to potential borrowers? (Use 365 days a year. Do not round intermediate calculations and round your final answer to 2 decimal places.
Ben remembers from finance class that the shorter the amortization period, the less total interest you will pay. Calculate how much interest they would save if they made monthly payments over a 20 year amortization rather than a 25 year amortiza..
Ki is the required rate of return that we are solving for ; Rf is the risk-free rate; and we shall assume it is 4.6 percent; bi is the systematic risk of a stock that we will estimate;
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You're employed by CPA firm that has international client, Global Manufacturing, with home offices in country in the European Union. The company recently entered in a lucrative sales contract with company in South Africa.
Frazier Manufacturing paid a dividend last year of $2, which is expected to grow at a constant rate of 5%. Frazier has a beta of 1.3. If the market is returning 11% and the risk-free rate is 4%, calculate the value of Frazier's stock.
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Alpha Products plans to finance its capital budget for next year by selling $50 million of 11 percent coupon rate bonds, with each bond having a maturity value (M) of $1,000 and a 20-year maturity.
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Determine the cash flows associated with calculating the present value of preferred stock and the cash flows associated with calculating the present value of common stock?
A Treasury bond that matures in 10 years has a yield of 6%. A 10-year corporate bond has a yield of 9%. Assume that the liquidity premium on the corporate bond is 0.4%. What is the default risk premium on the corporate bond? Round your answer to t..
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