Great Lakes Packing has two bond issues outstanding. The first issue has a coupon rate of 3.58 percent, a par value of $1,000 per bond, matures in 6 years, has a total face value of $4.0 million, and is quoted at 105 percent of face value. The second issue has a coupon rate of 6.26 percent, a par value of $2,000 per bond, matures in 25 years, has a total face value of $8.3 million, and is quoted at 93 percent of face value. Both bonds pay interest semiannually. The company's tax rate is 35 percent. What is the firm's weighted average aftertax cost of debt?

Great Lakes Packing has two bond issues outstanding. The first issue has a coupon rate of 3.58 percent, a par value of $1,000 per bond, matures in 6 years, has a total face value of $4.0 million, and is quoted at 105 percent of face value. The second issue has a coupon rate of 6.26 percent, a par value of $2,000 per bond, matures in 25 years, has a total face value of $8.3 million, and is quoted at 93 percent of face value. Both bonds pay interest semiannually. The company's tax rate is 35 percent. What is the firm's weighted average aftertax cost of debt?

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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Two 25-year maturity mortgage-backed bonds are issued. The first bond has a par value of $10,000 and promises to pay a 7.0 percent annual coupon, while the second is a zero coupon bond that promises to pay $10,000 (par) after 25 years, with interest accruing at 6.5 percent. At issue, bond market investors require a 8.5 percent interest rate on both bonds. Now assume that both bonds promise interest at 7.0 percent, compounded semiannually. What will be the initial price for each bond? What is the initial price of Bond 1 and Bond 2?
General Mills has a $1,000 par value, 23-year to maturity bond outstanding with an annual coupon rate of 8.11 percent per year, paid semiannually. Market interest rates on similar bonds are 8.77 percent. Calculate the bond's price today. Round the answer to two decimal places.
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(Bond valuation relationships) Arizona Public Utilities issued a bond that pays $80 in interest, with a $1,000 par value. It matures in 25 years. The market's required yield to maturity on a comparable-risk bond is 7 percent. a: Calculate the value of the bond b. How does the value change if the market's required yield to maturity on a comparable-risk bond () increases to 10 percent or (4) decreases to 6 percent? c. Explain the implications of your answers in part b as they relate to interest-rate risk, premium bonds, and discount bonds. d. Assume that the bond matures in 5 years instead of 25 years. Recompute your answers in parts a and b e. Explain the implications of your answers in part d as they relate to interest-rate risk, premium bonds, and discount bonds. a. What is the value of the bond if the markets required yield to maturity on a comparable-risk bond is 7 percent? $1,116.54 (Round to the nearest cent) b. () What is the value of the bond if the market's required yield to…
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