A company bond will mature in two years. The value of company's unlevered equity in two years have 50%-50% probability of either $18 million or $10 million. The bond is a zero- coupon bond having a face value of $14 million. The cost of bankruptcy is $2 million. The market risk premium and the risk-free rate is 7% and 4% respectively. The market price of the bond will be 65% of the bond face value. Calculate the beta of the company's debt. O The beta of the company's debt is -0.54. The beta of the company's debt is 0.14. The beta of the company's debt is -1.24. The beta of the company's debt is 0.54.

A company bond will mature in two years. The value of company's unlevered equity in two years have 50%-50% probability of either $18 million or $10 million. The bond is a zero- coupon bond having a face value of $14 million. The cost of bankruptcy is $2 million. The market risk premium and the risk-free rate is 7% and 4% respectively. The market price of the bond will be 65% of the bond face value. Calculate the beta of the company's debt. O The beta of the company's debt is -0.54. The beta of the company's debt is 0.14. The beta of the company's debt is -1.24. The beta of the company's debt is 0.54.

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

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keenan industries has a bond outstanding with 15 years to maturity, an 8.75% coupon paid semiannually, and a $1,000 par value. The bond has a 6.50% nominal yield to maturity, but it can be called in 6 years at a price of $1,050. What is the bond's nominal yield to call? Can you provide a detail explanation....
Morin Company's bonds mature in 3 years, have a par value of $1000, and make a semiannual coupon of 7%. The market requires an interest rate of 4.25% on these bonds. What is the bond's price?
Bonaqua Alison Corporation Limited is planning to issue 10-year bonds with a face value of $1,000. The current market rate for similar bonds is 3.5%. Assume that coupon payments will be semi-annual. The company is trying to decide between issuing a 2.8% coupon bond or a zero coupon bond. The company needs to raise $2.5 million. a. What will be the price of the 2.8% coupon bonds? b. How many coupon bonds would have to be issued? c. Is the bond selling at a premium and why? d. What will be the price of the zero coupon bonds?
Tsai Enterprises has a bond outstanding with 25 years to maturity, a 6% coupon paid semiannually, and a $1,000 par value. The bond has a 5% nominal yield to maturity, but it can be called in 5 years at a price of $1,050. What is the bond's nominal yield to call?
Your company wants to raise $8.0 million by issuing 30-year zero-coupon bonds. If the yield to maturity on the bonds will be 5% (annual compounded APR), what total face value amount of bonds must you issue?
Keenan Industries has a bond outstanding with 15 years to maturity, an 8.25% coupon paid semiannually, and a $1,000 par value. The bond has a 6.75% nominal yield to maturity, but it can be called in 4 years at a price of $1,085. What is the bond’s nominal yield to call?
Morin Company's bonds mature in 3 years, have a par value of $1000, and make a semiannual coupon of 6%. The market requires an interest rate of 3.08% on these bonds. What is the bond's price?
KroBank issues a zero coupon bond and it has to pay the face value of the bond of $100 M due in exactly five years. Assuming interest rates are currently at 8% p.a., which of the following is the best investment option for the bank to ensure it has enough funds to meet the liability in five years: Invest $100M today in coupon-paying bonds paying 8% p.a. annual coupons with maturity of 7 years (duration is 5.62 years), sell the bonds in year 5. Invest $100M today in coupon-paying bonds paying 8% p.a. annual coupons with maturity of 6 years (duration is 4.99 years), sell the bonds in year 5. Invest $100 M today in coupon-paying bonds paying 8% p.a. annual coupons with maturity of 5 years (duration is 4.31 years). Invest $100 M today in coupon-paying bonds paying 8% p.a. annual coupons with maturity of 8 years (duration is 6.21 years), sell the bonds in year 5.
McCue Inc.'s bonds currently sell for $1,245. They pay a $80 annual coupon, have a 7-year maturity, and a $1,000 par value, but they can be called in 4 years at $1,080. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. What is the difference between this bond's YTM and its YTC? (Subtract the YTC from the YTM; it is possible to get a negative answer.) O 0.56% O 0.86% O 0.66% O 0.76% 0.96%
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?
Arco Industries has a bond outstanding with 15 years to maturity, an 8.25% nominal coupon, semiannual payments, and a $1,000 par value. The bond has a 7.20% yield to maturity, but it can be called in 6 years at a price of $1,045. What is the bond's yield to call? Hint: Calculate the bond's price based on the YTM, and then use that price to find the YTC. Your answer should be between 4.08 and 10.64, rounded to 2 decimal places, with no special characters.
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?

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