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Solve the following problems regarding bank loans, bonds, and stocks. Assume an interest rate of 12 percent. a. How much would you pay for a 10-year bond with a par value of $1,000 and a 10.4 percent coupon rate? Assume interest is paid annually. b. How much would you pay for a share of preferred stock paying a $6.2-per-share annual dividend forever? c. A company is planning to set aside money to repay $168 million in bonds that will be coming due in ten years. How much money would the company need to set aside at the end of each year for the next ten years to repay the bonds when they come due? How would your answer change if the money were deposited at the beginning of each year? Note: Round your answers to 2 decimal places. a. PV b. PV c1. PMT million c2. PMT 8.55 million

Solve the following problems regarding bank loans, bonds, and stocks. Assume an interest rate of 12 percent. a. How much would you pay for a 10-year bond with a par value of $1,000 and a 10.4 percent coupon rate? Assume interest is paid annually. b. How much would you pay for a share of preferred stock paying a $6.2-per-share annual dividend forever? c. A company is planning to set aside money to repay $168 million in bonds that will be coming due in ten years. How much money would the company need to set aside at the end of each year for the next ten years to repay the bonds when they come due? How would your answer change if the money were deposited at the beginning of each year? Note: Round your answers to 2 decimal places. a. PV b. PV c1. PMT million c2. PMT 8.55 million

Corporate Fin Focused Approach
Corporate Fin Focused Approach
5th Edition
ISBN:9781285660516
Author:EHRHARDT
Publisher:EHRHARDT
Chapter9: The Cost Of Capital
Section: Chapter Questions
Problem 16P
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Solve the following problems regarding bank loans, bonds, and stocks. Assume an interest rate of 12 percent. a. How much would you pay for a 10-year bond with a par value of $1,000 and a 10.4 percent coupon rate? Assume interest is paid annually. b. How much would you pay for a share of preferred stock paying a $6.2-per-share annual dividend forever? c. A company is planning to set aside money to repay $168 million in bonds that will be coming due in ten years. How much money would the company need to set aside at the end of each year for the next ten years to repay the bonds when they come due? How would your answer change if the money were deposited at the beginning of each year? Note: Round your answers to 2 decimal places. a. PV b. PV c1. PMT million c2. PMT 8.55 million
Transcribed Image Text:Solve the following problems regarding bank loans, bonds, and stocks. Assume an interest rate of 12 percent. a. How much would you pay for a 10-year bond with a par value of $1,000 and a 10.4 percent coupon rate? Assume interest is paid annually. b. How much would you pay for a share of preferred stock paying a $6.2-per-share annual dividend forever? c. A company is planning to set aside money to repay $168 million in bonds that will be coming due in ten years. How much money would the company need to set aside at the end of each year for the next ten years to repay the bonds when they come due? How would your answer change if the money were deposited at the beginning of each year? Note: Round your answers to 2 decimal places. a. PV b. PV c1. PMT million c2. PMT 8.55 million
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