XYZ Corporation has zero-coupon debt outstanding which has a face value of $400, due in five years. The market value of the firm's assets now doubles the face value of debt. The annualized standard deviation in values of comparable firms is 10% on a annual basis. The five-year T-bond rate is 5%. Estimate the value equity, using an option pricing model (keep two decimal places). Your Answer: Answer

XYZ Corporation has zero-coupon debt outstanding which has a face value of $400, due in five years. The market value of the firm's assets now doubles the face value of debt. The annualized standard deviation in values of comparable firms is 10% on a annual basis. The five-year T-bond rate is 5%. Estimate the value equity, using an option pricing model (keep two decimal places). Your Answer: Answer

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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Your firm has a credit rating of A. You notice that the credit spread for five-year maturity A debt is 89 basis points (0.89%). Your firm's five-year debt has a coupon rate of 6.2% with semi-annual coupons. You see that new five-year Treasury notes are being issued at par with a coupon rate of 1.8%. What should be the price of your outstanding five-year bonds per $100 face value. The price of the bond is $ (Round to the nearest cent.)
Current 1-year spot rate is 3.5%. Annual volatility of interest rates is 10%. If rr₁, =4.5%, calculate the price of a 2-year bond with annual 5% coupon (paid annually). Assume face value of $100. Type your answer...
The S&R index spot price is 1100 and the continuously compounded interest rate is 5%. You observed a 9-month forward price of 1129.257. (a) What is the implied dividend yield? (b) Suppose you believe the dividend yield will be 3% over the next 9 months. How can you arbitrage?
Your firm has a credit rating of A. You notice that the credit spread for five-year maturity A debt is 89 basis points (0.89%). Your firm's five-year has semi-annual coupons and a coupon rate of 6%. You see that new five-year Government of Canada bonds are being issued with a YTM of 3%. What should the price of your outstanding five-year bonds be? Assume a par value of $100. The price of your outstanding five-year bonds should be $ (Round to the nearest cent.)
A firm plans to issue 20 years bonds with a 7% annual coupon rate. The face value will be $1000 and the bonds will sell at par. If their investment banker charges them flotation costs of 5%, what will the YTM be on the bonds?
Booher Book Stores has a beta of 0.4. The yield on a 3-month T-bill is 5% and the yield on a 10-year T-bond is 6%. The market risk premium is 5.5%, and the return on an average stock in the market last year was 14%. What is the estimated cost of common equity using the CAPM? Round your answer to two decimal places.
consider a 30 - year U.S. corporate bond with a 10% coupon rate. The current interest rate is 7 percent. Find the holding period return, if the interest rate rises by 10 basis points after one period.
A firm with an AA rating likes to issue one million units of a 10 year-2% bond with face value $100. The yearly coupon payment is $2.40. After the financial crisis the firm is downgraded to a B+ rating. The yield curve is flat and the yield is 2% (per year). The default spreads are given in the table below. (a) What is the initial amount (before downgrading) the firm wants to raise? (b) How much can this now B+ rated firm raise by selling the same bond? (c) If the firm keeps the coupon rate and wants to raise the planned amount, how many more bonds does it issue? (d) What is the additional interest payment per year the firm has to pay? (e) Suppose the firm wants to raise the same total amount and adjusts the coupon payment so as to sell the bond for $100 each. What is the new coupon rate? (f) What is the additional interest payment per year the firm has to pay? Rating Default spread AAA 0.20% AA 0.40% A+ 0.60% A 0.80% A- 1.00% BBB…

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