Bradshaw Steel has a capital structure with 30 percent debt (all long-term bonds) and 70 percent common equity. The yield to maturity on the company’s long-term bonds is 8 percent, and the firm estimates that its overall composite WACC is 10 percent. The risk-free rate of interest is 5.5 percent, the market risk premium is 5 percent, and the company’s tax rate is 40 percent. Bradshaw uses the CAPM to determine its cost of equity. What is the beta on Bradshaw’s stock? 1.48 1.35 1.31 1.07 0.10 2. Calculate the market price today of a P1,000 bond which has 10 years until maturity and pays quarterly interest at an annual coupon rate of 12 percent. The required return on similar risk bonds is 20 percent. P845.66 P835.45 P2,201.08 P656.82 3. What happens to the annual price of a four-year, P1,000 bond with an 8% annual coupon when interest rates change from 8% to 6%? A price increase of P69.30. A price increase of P57.07. A price decrease of P57.09. No change in price.
Bradshaw Steel has a capital structure with 30 percent debt (all long-term bonds) and 70 percent common equity. The yield to maturity on the company’s long-term bonds is 8 percent, and the firm estimates that its overall composite WACC is 10 percent. The risk-free rate of interest is 5.5 percent, the market risk premium is 5 percent, and the company’s tax rate is 40 percent. Bradshaw uses the CAPM to determine its cost of equity. What is the beta on Bradshaw’s stock? 1.48 1.35 1.31 1.07 0.10 2. Calculate the market price today of a P1,000 bond which has 10 years until maturity and pays quarterly interest at an annual coupon rate of 12 percent. The required return on similar risk bonds is 20 percent. P845.66 P835.45 P2,201.08 P656.82 3. What happens to the annual price of a four-year, P1,000 bond with an 8% annual coupon when interest rates change from 8% to 6%? A price increase of P69.30. A price increase of P57.07. A price decrease of P57.09. No change in price.
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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1. Bradshaw Steel has a capital structure with 30 percent debt (all long-term bonds) and 70 percent common equity. The yield to maturity on the company’s long-term bonds is 8 percent, and the firm estimates that its overall composite WACC is 10 percent. The risk-free rate of interest is 5.5 percent, the market risk premium is 5 percent, and the company’s tax rate is 40 percent. Bradshaw uses the CAPM to determine its cost of equity . What is the beta on Bradshaw’s stock?
1.48
1.35
1.31
1.07
0.10
2. Calculate the market price today of a P1,000 bond which has 10 years until maturity and pays quarterly interest at an annual coupon rate of 12 percent. The required return on similar risk bonds is 20 percent.
P845.66
P835.45
P2,201.08
P656.82
3. What happens to the annual price of a four-year, P1,000 bond with an 8% annual coupon when interest rates change from 8% to 6%?
A price increase of P69.30.
A price increase of P57.07.
A price decrease of P57.09.
No change in price.
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