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Problem 2-18 Functions of Financial Markets (L03) Consider the table shown below to answer the question posed in part a. Parts b and c are independent of the given table. Callaway Golf (ELY) Alaska Air Group (ALK) Yum! Brands (YUM) Caterpillar Tractor (CAT) Microsoft (MSFT) Number of Share (millions) 94.2 . 123.7 301.7 * 543.3 7,560 Stock Price 27.30 50.70 103.07 186.66 242.12 Market Capitalization (5 millions) $2,572 $ 6,272 $ 31,096 $ 101,412 $1,830,427 a. The price of Yum! Brands stock has risen to $160. What is the market value of the firm's equity if the number of outstanding shares does not change? Note: Enter your answer in dollars not in billions of dollars. b. The rating agency has revised Catalytic Concepts' bond rating to AAA (use Table 2.2). What interest rate, approximately, would the company now need to pay on its bonds? Note: Enter your answer as a percent rounded to 1 decimal place. c. A farmer and a meatpacker use the commodity markets to reduce their risk. One agrees to buy live cattle in the future at a fixed price, and the other agrees to sell. Which one sells?

Problem 2-18 Functions of Financial Markets (L03) Consider the table shown below to answer the question posed in part a. Parts b and c are independent of the given table. Callaway Golf (ELY) Alaska Air Group (ALK) Yum! Brands (YUM) Caterpillar Tractor (CAT) Microsoft (MSFT) Number of Share (millions) 94.2 . 123.7 301.7 * 543.3 7,560 Stock Price 27.30 50.70 103.07 186.66 242.12 Market Capitalization (5 millions) $2,572 $ 6,272 $ 31,096 $ 101,412 $1,830,427 a. The price of Yum! Brands stock has risen to $160. What is the market value of the firm's equity if the number of outstanding shares does not change? Note: Enter your answer in dollars not in billions of dollars. b. The rating agency has revised Catalytic Concepts' bond rating to AAA (use Table 2.2). What interest rate, approximately, would the company now need to pay on its bonds? Note: Enter your answer as a percent rounded to 1 decimal place. c. A farmer and a meatpacker use the commodity markets to reduce their risk. One agrees to buy live cattle in the future at a fixed price, and the other agrees to sell. Which one sells?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Problem 2-18 Functions of Financial Markets (LO3) Consider the table shown below to answer the question posed in part a. Parts b and c are independent of the given table. Market capitalization (5 millions) Callaway Golf (ELY) Alaska Air Group (ALK) Yum! Brands (YUM) Caterpillar Tractor (CAT) Microsoft (MSFT) Number of M Share (millions) 94.2 123.7 M 301.7 X 543.3 X 7,560 a. Market value. b. Interest rate c. Which one sells? Answer is complete but not entirely correct. 1,988,955 A farmer $ 2,572 Stock Price 27.30 50.70 103.07 $ 31,096 186.66 - $ 101,412 242.12 $1,830,427 $ 6,272 a. The price of Yum! Brands stock has risen to $160. What is the market value of the firm's equity if the number of outstanding shares does not change? Note: Enter your answer in dollars not in billions of dollars. b. The rating agency has revised Catalytic Concepts' bond rating to AAA (use Table 2.2). What interest rate, approximately, would the company now need to pay on its bonds? Note: Enter your answer as a percent rounded to 1 decimal place. c. A farmer and a meatpacker use the commodity markets to reduce their risk. One agrees to buy live cattle in the future at a fixed price, and the other agrees to sell. Which one sells? 1.7 % - - -
Transcribed Image Text:Problem 2-18 Functions of Financial Markets (LO3) Consider the table shown below to answer the question posed in part a. Parts b and c are independent of the given table. Market capitalization (5 millions) Callaway Golf (ELY) Alaska Air Group (ALK) Yum! Brands (YUM) Caterpillar Tractor (CAT) Microsoft (MSFT) Number of M Share (millions) 94.2 123.7 M 301.7 X 543.3 X 7,560 a. Market value. b. Interest rate c. Which one sells? Answer is complete but not entirely correct. 1,988,955 A farmer $ 2,572 Stock Price 27.30 50.70 103.07 $ 31,096 186.66 - $ 101,412 242.12 $1,830,427 $ 6,272 a. The price of Yum! Brands stock has risen to $160. What is the market value of the firm's equity if the number of outstanding shares does not change? Note: Enter your answer in dollars not in billions of dollars. b. The rating agency has revised Catalytic Concepts' bond rating to AAA (use Table 2.2). What interest rate, approximately, would the company now need to pay on its bonds? Note: Enter your answer as a percent rounded to 1 decimal place. c. A farmer and a meatpacker use the commodity markets to reduce their risk. One agrees to buy live cattle in the future at a fixed price, and the other agrees to sell. Which one sells? 1.7 % - - -
Credit Rating AAA AA A BBB BB B Interest Rate 1.68 1.6 1.7 2.4 4.2 5.6 Source: ICE Bank of America Merrill Lynch indices.
Transcribed Image Text:Credit Rating AAA AA A BBB BB B Interest Rate 1.68 1.6 1.7 2.4 4.2 5.6 Source: ICE Bank of America Merrill Lynch indices.
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