A home appliance manufacturing company plans to invest what it considers "temporary excess fund" in high-quality debenture bonds. How much should the company pay for bonds that have a face value of $5,000, an interest rate of 10% per year, payable quarterly, and a maturity date of 5 years, if the company wants to make 4% per quarter? How much should pay for this bond? S

A home appliance manufacturing company plans to invest what it considers "temporary excess fund" in high-quality debenture bonds. How much should the company pay for bonds that have a face value of $5,000, an interest rate of 10% per year, payable quarterly, and a maturity date of 5 years, if the company wants to make 4% per quarter? How much should pay for this bond? S

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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Please clearly write down how you get your answers, such as the variables you used to put in the financial calculator/formulas. Thank you. Could you only answer questions 4 and 5?
None
Suppose Ford Motor Company issues a five year bond with a face value of $5,000 that pays an annual coupon payment of $150. a. What is the interest rate Ford is paying on the borrowed funds? b. Suppose the market interest rate rises from 3% to 4% a year after Ford issues the bonds. Will the value of the bond increase or decrease?
Solve the following problems regarding bank loans, bonds, and stocks. Assume an interest rate of 12 percent. a. How much would you pay for a 10-year bond with a par value of $1,000 and a 10.4 percent coupon rate? Assume interest is paid annually. b. How much would you pay for a share of preferred stock paying a $6.2-per-share annual dividend forever? c. A company is planning to set aside money to repay $168 million in bonds that will be coming due in ten years. How much money would the company need to set aside at the end of each year for the next ten years to repay the bonds when they come due? How would your answer change if the money were deposited at the beginning of each year? Note: Round your answers to 2 decimal places. a. PV b. PV c1. PMT c2.PMT million 8.55 million
If the owners choose to invest in bonds instead, they look at a $136,125 bond set to mature in 9 years with a bond rate of 2%, payable semi-annually. The market rate is 5.40%, compounded semi-annually. The owners will only purchase the bond if they can afford it with their savings $123,750, and they can get the bond at a discount because they think the market rate will go down, potentially making the bond more valuable in the future. 1. If the bond rate is 2%, will the bond be sold at a premium or a discount? Explain your answer.
Suppose your company needs to raise $28 million and you want to issue 20-year bonds for this purpose. Assume the required return on your bond issue will be 8 percent, and you're evaluating two issue alternatives: an 8 percent annual coupon and a zero coupon bond. Your company's tax rate is 25 percent. In 20 years, what will your company's repayment be if you issue the coupon bonds? What if you issue the zeros? (Assume annual compounding on the zero coupon bond.)
BroadStreet Bank has just been given a $10,000,000, 5 year CD deposit by the local municipality. The bank has agreed to pay 8%, compounded annually on this deposit. The bank wishes to choose one debt investment to cover this deposit, so that they have earnings from this investment to just cover the interest and CD principal when it comes due in 5 years. They are looking at the following 3 possibilities for investment: Bond Maturity Coupon YTM Duration1 5 0.00% 8.00% 5.002 6 7.90% 8.00% 5.003 7 17.15% 8.00% 5.00 • Show that each of three investment will cover the future payout required by the CD, even if market rates increase or drop by ½ % by the end of 5 years
What would you pay for a $205,000 debenture bond that matures in 15 years and pays $10,250 a year in interest if you wanted to earn a yield of 4%? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)
Please provide whole answer: A company has a bond outstanding. Bond A has a face value of $20,000 and matures in 20 years. The bond makes no payments for the first six years, then pays $900 every six months over the subsequent eight years, and finally pays $1,300 every six months over the last six years. If the required return on this bond is 5.4% compounded semiannually, what is the current price of Bond A? What would be the price if the bond was compounded quarterly?
Breach Candy wants to issue new 12-year debt. Breach Candy has already issued debt with 7.4 percent coupon interest, priced at $939.63, These bonds pay interest twice a year and their time to maturity is 12 years. If Breach Candy wants to sell the new debt at par and assuming a par value of $1,000 what coupon interest rate should Breach Candy set on its new debt?
Show work and formula used to get to the answer. What is the cost of new AND existing debt if the current price of the bonds is $1,050? The bonds pay a semiannual coupon of $80 ($40 every six months), mature in 12 years, and have a face value of $1,000. The floatation cost for debt is 5%. Check the number of periods per year on your calculator.
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