RAK Co. wants to issue new 20-year bonds forsome much-needed expansionprojects. The company currently has 6.4 percentcoupon bonds on the marketthat sell for $1,063, make semiannual payments, andmature in 20 years. Whatcoupon rate should the company set on its newbonds if it wants them to sell atpar?

To solve for the yield to maturity (YTM) , we'll follow these steps: 1. Understand the bond pricing…

Answered: RAK Co. wants to issue new 20-year…

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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Company Z's bonds currently sell for $1233 and have a par value of $1,000. They pay a $110 annual coupon and have a 15-year maturity, but they can be called in 5 years at $1,350. What is their yield to call (YTC)?
Builtrite needs to raise $2,000,000 for a plant improvement. It plans to sell $1000 par value bonds with a 10% coupon rate arde a 15 year maturity. Investors require a 9% rate of return. Calculate the market value of the bonds, what is the net price of the bonds if flotation costs are 5% of the market price?
(Bond valuation) Pybus, Inc. is considering issuing bonds that will mature in 20 years with an annual coupon rate of 11 percent. Their par value will be $1,000, and the interest will be paid semiannually. Pybus is hoping to get a AA rating on its bonds and, if it does, the yield to maturity on similar AA bonds is 12 percent. However, Pybus is not sure whether the new bonds will receive a AA rating. If they receive an A rating, the yield to maturity on similar A bonds is 13 percent. What will be the price of these bonds if they receive either an A or a AA rating? a. The price of the Pybus bonds if they receive a AA rating will be $ ______
Uliana Company wants to issue new 19-year bonds for some much-needed expansion projects. The company currently has 10.3 percent coupon bonds on the market that sell for $1,143, make semiannual payments, have a par value of $1,000, and mature in 19 years. What coupon rate should the company set on its new bonds if it wants them to sell at par? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. Answer is complete but not entirely correct.
Many companies look to re-finance their outstanding debt when interest rates fall significantly. Javert Toy Company has $50.00 million in debt outstanding that pays an 8.75% APR coupon. The debt has an average maturity of 10.00 years. The firm can refinance at an annual rate of 5.25%. That is, investors want 5.25% today for bonds of similar risk and maturity. How much will Javert save on interest payments with this re-finance? You can assume that Javert will issue debt to cover the full price of repurchasing the old debt from part A. (answer in terms of millions, so 1,000,000 would be 1.00) Submit Answer format: Currency: Round to: 4 decimal places.
LUVFINANCE, Inc. is estimating its WACC. It is operating at its optimal capital structure. Its outstanding bonds have a 12 percent coupon, paid semiannually, a current maturity of 17 years, and sell for $1,162. It has 100,000 bonds outstanding. The firm can issue new 20-year maturity semiannual bonds at par but will incur flotation costs of $50 per bond (Hint: the coupon rate on the new bonds = the YTM on existing bonds). The firm %3D could sell, at par, $100 preferred stock that pays a 12 percent annual dividend that is currently selling for $120. The firm currently has 1,000,000 shares of preferred stock outstanding. Rollins' beta is 0.89, the risk-free rate is 3.54 percent, and the market risk premium is 6 percent. The common stock currently sells for $100 a share and there are 5,000,000 shares outstanding. The firm's marginal tax rate is 40 percent. What is the WACC?
Imagination Dragons Corporation needs to raise funds to finance a plant expansion, and it has decided to issue 20-year zero coupon bonds with a par value of $1,000 each to raise the money. The required return on the bonds will be 8 percent. Assume semiannual compounding periods. a. What will these bonds sell for at issuance? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. Using the IRS amortization rule, what interest deduction can the company take on these bonds in the first year? In the last year? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) c. Repeat part (b) using the straight-line method for the interest deduction. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. b. C. Issue price First year interest deduction Last year interest deduction Interest deduction $ $ 208.29 39.58
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Uliana Company wants to issue new 15-year bonds for some much-needed expansion projects. The company currently has 7 percent coupon bonds on the market that sell for $1,060, have a par value of $1,000, make semiannual payments, and mature in 15 years. What coupon rate should the company set on its new bonds if it wants them to sell at par? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Coupon rate %

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