Solution method uses PV function/formula delines: <-- To view guidelines, move mouse pointer over cell with red triangle. Red triangle identifies a cell comment. blem: Current cost of a bond: You know that the after-tax cost of debt capital for Bubbles Champagne Company is 7 percent. If the firm has only one issue of five-year bonds outstanding, what is the current price of the bonds if the coupon rate on those bonds is 10 percent? Assume the bonds make semiannual coupon payments and the marginal tax rate is 30 percent. nown: Before tax cost of debt and current price of bond. umption(s) Par or face value of bond is $1,000 After tax cost of debt is an annual rate with semiannual compounding en information/inputs/arguments: After tax cost of debt Maturity date, future years Annual coupon rate on bonds Times per year that interest paid ****** ****** Marginal tax rate Values Comments Enter percent as XX.XX% or decimal, .XXXX Enter amount as positive value Enter percent as XX.XX% or decimal, .XXXX Compounded semiannually. Enter percent as XX.XX% or decimal, .XXXX

Solution method uses PV function/formula delines: <-- To view guidelines, move mouse pointer over cell with red triangle. Red triangle identifies a cell comment. blem: Current cost of a bond: You know that the after-tax cost of debt capital for Bubbles Champagne Company is 7 percent. If the firm has only one issue of five-year bonds outstanding, what is the current price of the bonds if the coupon rate on those bonds is 10 percent? Assume the bonds make semiannual coupon payments and the marginal tax rate is 30 percent. nown: Before tax cost of debt and current price of bond. umption(s) Par or face value of bond is $1,000 After tax cost of debt is an annual rate with semiannual compounding en information/inputs/arguments: After tax cost of debt Maturity date, future years Annual coupon rate on bonds Times per year that interest paid Marginal tax rate Values Comments Enter percent as XX.XX% or decimal, .XXXX Enter amount as positive value Enter percent as XX.XX% or decimal, .XXXX Compounded semiannually. Enter percent as XX.XX% or decimal, .XXXX

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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Conceptual Overview: Explore the value of fixed-interest coupon bonds of different terms. This graph shows the value of 10% coupon bonds of different terms across differing market interest rates. Each bond pays INT = $100 at the end of each year and returns M = $1,000 at maturity. For comparison, the blue line depicts the value of a one-year bond. The term of the other bond in years may be changed using the slider. Drag on the graph to change the current market interest rate (rd) at which the bond (orange curve) is evaluated. ∑ t = 1 Y r s I N T ( 1 + r d ) + M ( 1 + r d ) = ∑ t = 1 1 5 $ 1 0 0 ( 1 + 0 . 1 0 0 ) + $ 1 0 0 0 ( 1 + 0 . 1 0 0 ) = 1 , 0 0 0 ∑ t=1 Yrs (1+r d ) t INT + (1+r d ) Yrs M =∑ t=1 15 (1+0.100) t $100 + (1+0.100) 15 $1000 =1,000 ∑t=1Yrs(1+rd)tINT+(1+rd)YrsM=∑t=115(1+0.000)t$100+(1+0.000)15$1000=2,500. 1. What is the value of a 15-year 10% $1,000 coupon bond when the market interest rate is 15%? $421$708$1,000$1,5192. What is the value of a 12-year 10% $1,000…
Exploring Finance: Coupon Bonds. Coupon Bonds Conceptual Overview: Explore the value of fixed-interest coupon bonds of different terms. This graph shows the value of 10% coupon bonds of different terms across differing market interest rates. Each bond pays INT = $100 at the end of each year and returns M = $1,000 at maturity. For comparison, the blue line depicts the value of a one-year bond. The term of the other bond in years may be changed using the slider. Drag on the graph to change the current market interest rate (rd) at which the bond (orange curve) is evaluated. 5. For a 10%, $1,000 coupon bond, a longer term bond (say, 15 years) is: less affected by changes in the market rate than a 1-year bond. affected the same by changes in the market rate than a 1-year bond. more affected by changes in the market rate than a 1-year bond. Cannot be determined.
(c) Re-calculate the prices of the bonds if the required return falls to 9%.(d) Explain how underwriters use the overallotment option in IPOs.
Subject-advance maths
Consider two types of bonds: A 10 year to maturity corporate bond and a 10 year to maturity Treasury bond. We know that Corporate Bonds have default risk. Discuss the impact on the markets for these two type of bonds & on the risk premium when there is a FALL in the risk of corporate default? Provide a DISCUSSION of the impact and ILLUSTRATE the impact graphically using two diagrams, one for corporate bonds and one for Treasuries. The diagrams should show the impact on each yield and the impact on the risk premium [label your diagram clearly to illustrate the old premium vs. the new premium]. hint: draw your diagrams side by side, so you can show the risk premiums as done in lecture.
An insurance company must make payments to a customer of $10 million in one year and $5 million in five years. The yield curve is flat at 10%. Required: a. If it wants to fully fund and immunize its obligation to this customer with a single issue of a zero-coupon bond, what maturity bond must it purchase? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. b. What must be the face value and market value of that zero-coupon bond? Note: Do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places. a. Maturity of zero coupon bond b. Face value b. Market value years million million
You are analyzing the cost of debt for a firm. You know that the firm’s 14-year maturity, 8.6 percent coupon bonds are selling at a price of $849.00. The bonds pay interest semiannually. If these bonds are the only debt outstanding for the firm, answer the following questions. What is the current YTM of the bonds? (round intermediate calculations to 4 decimal places, and final answer to 0 decimal places) What is the after-tax cost of debt for this firm if it has a 30 percent marginal and average tax rate? (Round final answer to 2 decimal places, e.g. 15.25%.)
Please use this information to help me determine the correct Realized rate of return
What are the excel formulas and answers to Part A and Part B. Part A: (Left Side) KIMCHI CORPORATION's capital investment bonds have a maturity of 10 years with a face value of $1,000 and a semi-annual 10% coupon. They are callable in 3 years at $1150 and currently sell for $1,290. What is the nominal yield to maturity and the nominal yield to call? What return should investors expect to earn on these bonds. Part B: (Right Side) KIMCHI CORPORATION also has bonds with 5 years left to maturity with an annual coupon of 10%. What would be the yield to maturity at a current market price of $850? What would be the yield to maturity if the current market price would be $1,125? What would be the price of the bond to you if your cost of capital was 12%? What would be the price of the bond to you if your cost of capital was 8%?
You are analyzing the after-tax cost of debt for a firm. You know that the firm's 12-year maturity, 11.00 percent semiannual coupon bonds are selling at a price of $1,229. Assuming that these bonds are the only debt outstanding for the firm. Problem 13.19 a1-a3(a1) Your answer is correct. What is the current YTM of the bonds? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.) YTM eTextbook and Media Problem 13.19 a1-a3(a2) Your answer is incorrect. 8 % After-tax cost of debt What is the after-tax cost of debt for this firm if it has a marginal tax rate of 34 percent? (Round final answer to 2 decimal places, e.g. 15.25%.) Attempts: 1 of 3 used %
Create an essay using the following information: Assume you are evaluating whether to purchase the following $1,000 face value bonds: Co. X bond with a 6% coupon rate that matures in 9 years. Co. Y bond with an 11% coupon rate that matures in 7 years. Also, you may wish to review https://t.ly/wJqNM and https://t.ly/2EX2k about corporate junk (junk bonds). Given the scenario and information about junk bonds, address the following: Value these bonds assuming a market rate on similar risk bonds is 7% and interest is paid annually. Value these bonds assuming a market rate on similar risk bonds is 7% and interest is paid semi-annually. Value these bonds assuming a market rate on similar risk bonds is 12% and interest is paid annually. Assuming both bonds were issued at the same time, why would the Co. Y bond pay a higher coupon rate?
An insurance company is analyzing the following three bonds, each with five years to maturity, annual interest payments, and is using duration as its measure of interest rate risk. What is the duration of each of the three bonds? (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16)) a. $10,000 par value, coupon rate=9.7%, r 0.17 b. $10,000 par value, coupon rate 11.7%, r= 0.17 c. $10,000 par value, coupon rate = 13.7%, p=0.17 Duration of the bond years

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