b. The Saunders Investment Bank has the following financing outstanding. What is the WACC for the company? Debt: 60,000 bonds with a coupon rate of 6 percent and a current price quote of 109.5; the bonds have 20 years to maturity. 230,000 zero coupon bonds with a price quote of 17.5 and 30 years until maturity. Preferred stock: 150,000 shares of 4 percent preferred stock with a current price of GH¢ 79, and a par value of GH¢ 100. Common stock: 2,600,000 shares of common stock; the current price is GH¢ 65 and the beta of the stock is 1.15. Market: The corporate tax rate is 40 percent, the market risk premium is 7 percent, and the risk- free rate is 4 percent.

b. The Saunders Investment Bank has the following financing outstanding. What is the WACC for the company? Debt: 60,000 bonds with a coupon rate of 6 percent and a current price quote of 109.5; the bonds have 20 years to maturity. 230,000 zero coupon bonds with a price quote of 17.5 and 30 years until maturity. Preferred stock: 150,000 shares of 4 percent preferred stock with a current price of GH¢ 79, and a par value of GH¢ 100. Common stock: 2,600,000 shares of common stock; the current price is GH¢ 65 and the beta of the stock is 1.15. Market: The corporate tax rate is 40 percent, the market risk premium is 7 percent, and the risk- free rate is 4 percent.

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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A firm raises capital by selling $10,000 worth of debt with flotation costs equal to 2% of its par value. If the debt matures in 10 years and has an annual coupon interest rate of 11%, what is the bond's YTM? Question content area bottom Part 1 The bond's YTM is enter your response here%. (Round to two decimal places.)
Sanibel Industries has $1000 par value bonds with a coupon rate of 7% per year making semiannual coupon payments. If there are 11 years remaining prior to maturity and these bonds are selling for $1076 what is the annual yield to maturity for these bonds? O A. 1.51% O B. 3.02% O c. 12.10% O D. 6.03%
4. The Tyler Energy Corporation's $1,000 par bonds currently sell for $940, mature in seven years, and have semiannual coupon payments with a 8.2% annual coupon rate. a. What is the current yield? b. What is the yield to maturity (to the nearest basis point) c. What is the horizon yield for an investor with a 4-year holding period and a reinvestment rate of 6.8% over the period. At the end of the four years, the bonds will sell to yield 8.2%. Please do it on excel.
Your client wishes you to investigate a biotechnology company with the following balance sheet and details (below): Long-term debt $ Bonds: Par $100, coupon rate 7% p.a., 3 years to maturity 10,000,000 Equity Preference shares 8,000,000 Ordinary shares 18,000,000 Total 36,000,000 Notes: The company’s bank has advised that the interest rate on any new debt finance provided for the projects would be 6% p.a. if the debt issue is of similar risk and of the same time to maturity and coupon rate. There are currently 1,000,000 preference shares on issue, which pay a dividend of $0.85 per share. The preference shares currently sell for $5.69. The company’s existing 5,000,000 ordinary shares currently sell for $2.53 each. You have identified that the company has recently paid a $0.45 dividend. Historically, dividends have increased at an annual rate of 2% p.a. and are expected to continue to do so in the future. The company’s tax rate is 30%. Your client wishes to understand, with the use of…
A corporate bond sells for $990 currently. It has a 6-year maturity, an annual coupon of $75, and a par value of $1,000. What is their capital gains yield? 8.11% 0.14% 9.47% 0.13%
MLK Bank has an asset portfolio that consists of $180 million of 15-year, 10.5 percent annual coupon, $1,000 bonds that sell at par. b-1. The duration of these bonds is 8.1702 years. What are the predicted bond prices in each of the four cases using the duration rule? (the cases being ± 0.10 percent and ± 2.00 percent)
Big Door Company has 8.7 million shares outstanding, which are currently trading for about $13 per share and have a levered equity beta of 1.2. Big Door has 19,900 outstanding bonds, with a 4% coupon rate, payable semi-annually and due in 10 years. The bonds are rated BBB. Currently the credit spread for BBB is 178 basis points over equivalent-maturity Government of Canada debt. The current yield on 10-year Canada bonds is 5%, compounded semi-annually. The risk-free interest rate is 2%, and the market risk premium is 6.6%. The company has a 35% tax rate. (Do not round intermediate calculations.) a. Calculate Big Door's WACC. (Round your answer to 2 decimal places.) WACC b. Calculate Big Door's unlevered beta, using the following formula: (Round your answer to 2 decimal places.) Pleveret Pdebtx (1–Tc)×D/E BU 1+(1–Tc)×D/E es Unlevered beta c. If Big Door was 50% debt-financed, what would be its WACC? Assume that the beta of its debt is unchanged by the capital structure change. (Round…
Q1. A company issued 20-year bonds with par value $1,000 two years ago at a coupon rate of 5 percent. The bonds make semiannual coupon payments. The yield to maturity on this bond is 4 percent. Calculate the current yield of the bond. Q2. A company has an odd dividend policy. The company will pay a dividend of $3 per share next year and has announced that it will increase the dividend by $5 per share for each of the subsequent four years and then maintains a constant 2% growth rate. If you require a return of 8 percent on the company’s stock. A. How much will you pay for a share today?B. At the price you are willing to pay for, what is the dividend yield in the first year? Q3. A project has the following cash flow with a discount rate of 12%: Annual cash flows: Year 0 Year 1 Year 2 Year 3 Year 4 $ -520,000 $ 170,000 $ 210,000 $ 225,000 $ 195,000 $520,000 is used in purchasing an equipment for the project only. Compute the following: Payback period; Discounted Payback…
MLK Bank has an asset portfolio that consists of $150 million of 15-year. 7.5 percent annual coupon, $1,000 bands that sell at par e-1. What will be the bonds new prices if market yields change immediately by ± 010 percent? a-2. What will be the new prices if market yields change immediately by = 2.00 percent? b-1. The duration of these bonds is 9.4892 years. What are the predicted bond prices in each of the four cases using the duration rule? b-2. What is the amount of error between the duration prediction and the actual market values? Complete this question by entering your answers in the tabs below. Required A1 Required A2 Required B1 Required B2 The duration of these bonds is 9.4892 years. What are the predicted bond prices in each of the four cases using the duration rule? (Do not round intermediate calculations. Enter all answers as positive numbers. Round your answers to decimal places, (ep.32.16)) AL-A 10% AL-0.10% A-20% At-20N Bonds' New Price E 000.00 990 51
5. A securities firm has provided the balance sheet below. Assets ($ millions) $ 34 Liabilities and Equity ($ millions) Short-term funding Cash $ 27 Debt securities 175 Bonds 300 Equity securities 400 Debentures 197 Other assets 12 Equity 97 Total Assets $ 621 Total Liabilities and Equity $ 621 The debt securities have an annual 7.25% coupon rate, 22 years to maturity and a yield to maturity of 6.75%. The market value of the equity securities and the other assets is equal to their book value. The firm has 500,000 shares outstanding and the price per share is $35.67. a. Calculate the firm's aggregate indebtedness to net capital ratio. b. Calculate the firm's highly liquid assets to total liabilities ratio. Based on the firm's ratios from a and b, is it in compliance with Rule 15C 3-1? Why or why not? C.
James Cobin Co is a software development company that headquarters in Toronto and covers Canada, the United States, Japan, and Europe. The firm has issued bonds at face value at a yield to maturity at 6% a few years ago. Now with 10 years left until maturity, the yield to maturity has increased to 8%. a. Explain and interpret the change in the yield to maturity. b. What is the current price of the bond? Assume coupons are paid once a year. C Suppose that you purchased this bond today and are considenng selling it a year later. The yield to maturity is expected to be 10% a year later. Isit a good investment? Explain.
Charlie Corporation is a chemical company. The company issued an outstanding bond with a P100,000 par value at 15-year maturity date. The coupon rate is 8%, and interest is paid quarterly. The required nominal interest rate on this borrowings has now increased to 16 percent . What is the current market value of the bond? Rules in solving: a. For the "PV FACTOR in computing the PV of the coupon and PV for the maturity value/ principal use until 8-9th decimal place" before multiplying the coupon payment or future value.Example: ___x 2.123456789 or 22.12345678b. For "COMPOUNDED RATES" include all decimals in the rate (do not round off).Example semi-annual: 13%/2 =0.065c. For the "VALUE OF THE BOND/ PRICE OF THE BOND" round off your answers and final answers into whole numbers.Example: 824.59= 825

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