A 30-year, $1000 par value bond with a 4% annual coupon bond sells for $900. Preferred stock pays $9.5 in dividends per year and has a selling price of $105. The risk-free rate (30 day t-bills) is 3%, the market risk premium is 6%, the stock's beta is 1.2, dividends are growing at 4% per year, the stock will pay $4 in dividends next year, the current stock price is $50, and the bond- equity risk premium is 6%. Assume a corporate tax rate of 20% and target weights of 40% debt, 20% preferred, 40% common equity. Calculate the weighted averae cost of capital for the firm 8.96% 6.86% 7.66% 10.56% 9.66%

A 30-year, $1000 par value bond with a 4% annual coupon bond sells for $900. Preferred stock pays $9.5 in dividends per year and has a selling price of $105. The risk-free rate (30 day t-bills) is 3%, the market risk premium is 6%, the stock's beta is 1.2, dividends are growing at 4% per year, the stock will pay $4 in dividends next year, the current stock price is $50, and the bond- equity risk premium is 6%. Assume a corporate tax rate of 20% and target weights of 40% debt, 20% preferred, 40% common equity. Calculate the weighted averae cost of capital for the firm 8.96% 6.86% 7.66% 10.56% 9.66%

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Similar questions

One year ago, a bond had a coupon rate of 9.94%, par value of $1,000.00, YTM of 10.98%, and semi-annual coupons. Today, the bond's price is $1,050.40 and the bond has 13 years until maturity. The next coupon is due in 6 months. What was the current yield of the bond one year ago? O 4.73% (plus or minus 2 bps) O 10.73% (plus or minus 2 bps) O 11.85% (plus or minus 2 bps) O 9.46% (plus or minus 2 bps) O none of the answers are within 2 bps of the correct answer
Workman Software has 9.8 percent coupon bonds on the market with 10 years to maturity. The bonds make semiannual payments and currently sell for 117.8 percent of par. a. What is the current yield on the bonds? multiple choice options 0.18% 8.74% 9.24% 8.32% b. The YTM? multiple choice options 10.30% 7.27% 7.45% 3.63% c. The effective annual yield? multiple choice options 7.24% 7.77% 7.40% 0.08%
6., RST Company offers a qualified retirement plan. Each employee contributes 4 percent of his or her pretax income to the plan, and RST matches each employee's contribution. An employee's benefit at retirement is determined by his or her account balance at the time of retirement. What type of retirement plan does RST offer? a. Defined contribution plan. b. Defined benefit, flat percentage of annual earnings c. Defined benefit, unit-credit formula. d. Defined benefit, flat dollar amount for all employees
A bond has a $1,000 par value, a 13% annual coupon, and matures in 5 years. What is the price of this bond (to the nearest dollar) if it has a yield of 12%?
A corporate bond has 30 years left to maturity, a par value of $1,000, coupon rate of 7.5% with semi-annual payment, and yield to maturity (YTM) of 4.32%. Let’s assume that in 5 years, the YTM on this increases to 5.13%. What will the $price be for this bond in 5 years?
What is the current yield for a bond that has a coupon rate of 8.7% paid annually, a par value of $1000, and 21 years to maturity? Investors require a return of 12.6% from the bond. ( Round to 100th of a percent and enter as a percentage, e.g. 12.34% as 12.34)
Booher Book Stores has a beta of 0.4. The yield on a 3-month T-bill is 5% and the yield on a 10-year T-bond is 6%. The market risk premium is 5.5%, and the return on an average stock in the market last year was 14%. What is the estimated cost of common equity using the CAPM? Round your answer to two decimal places.
Today, a bond has a coupon rate of 12.1%, par value of $1,000, YTM of 8.20%, and semi-annual coupons with the next coupon due in 6 months. One year ago, the bond's price was $1,281.05 and the bond had 5 years until maturity. What is the current yield of the bond today?
Morin Company's bonds mature in 5 years, have a par value of $1000, and make an annual coupon of 6%. The market requires an interest rate of 4.5% on these bonds. What is the bond's price?
A 10-year, 1000 par value bond with a 7% annual coupon is trading to yield 8%. What is the current yield?
A corporate bond has 30 years left to maturity, a par value of $1,000, coupon rate of 7.5% with semi-annual payment, and yield to maturity (YTM) of 3.33%. Let’s assume that in 5 years, the YTM on this increases to 5.51%. What will the $price be for this bond in 5 years?

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS