Your company has 50 million shares tradingat a price of $80, and perpetual debt withface value of $2.5 billion and coupon rate10%. The debt is rated AA and has a yield of12.5%. There is a proposal to issue anadditional $1 billion of equal-seniorityperpetual debt, and use the proceeds tobuy back equity. However, this is expectedto lower the bond rating to A-, which wouldraise the yield to 13.5%. If you go aheadwith the change, the wealth transfer fromwould amount to

A Bond refers to a concept that is defined as an instrument that represents the loan being made by…

Answered: Your company has 50 million shares…

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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Andrew Industries is contemplating issuing a 30-vear bond with a coupon rate of 7.13% (annual coupon payments) and a face value of $1,000. Andrew believes it can get a rating of A from Standard & Poor's. However, due to recent financial difficulties at the company, Standard & Poor's is warning that it may downgrade Andrew Industries' bonds to BBB. Yields on A-rated, long-term bonds are currently 6.49%, and yields on BBB-rated bonds are 6.87%. a. What is the price of the bond if Andrew Industries maintains the A rating for the bond issue? b. What will be the price of the bond if it is downgraded? a. What is the price of the bond if Andrew Industries maintains the A rating for the bond issue? If Andrew maintains the A rating for the bond issue, the price of the bond is S. (Round to the nearest cent.) b. What will be the price of the bond if it is downgraded? If it is downgraded, the new bond's price will be $. (Round to the nearest cent.)
Caspian Sea Drinks needs to raise $35.00 million by issuing bonds. It plans to issue a 14.00 year semi-annual pay bond that has a coupon rate of 5.17%. The yield to maturity on the bond is expected to be 4.72%. How many bonds must Caspian Sea issue? (Note: Your answer may not be a whole number. In reality, a company would not issue part of a bond.)
Sunderland Company is issuing 8 yr bonds with a coupon rate of 5.9% and semiannual coupon pymts. If the current market rate for similar bonds is 8%... What will the bond price be? (Round intermediate calculations to 5 decimal places & the bond price to 2 decimal places.) And if the company management wants to raise $1.25 million, how many bonds does the firm have to sell?
Your answer is correct. Cullumber, Inc., has a bond issue maturing in seven years that is paying a coupon rate of 7.5 percent (semiannual payments). Management wants to retire a portion of the issue by buying the securities in the open market. If it can refinance at 6.0 percent, how much will Cullumber pay to buy back its current outstanding bonds? Assume face value is $1,000. (Round answer to 2 decimal places, e.g. 15.25.) Cullumber will pay +A $ 1084.72
LMN Co.'s bonds, issued 5 years ago, currently sell for $1,100. They have a 9.15% annual coupon rate and a 20-year maturity, a $1,000 par value, and are callable in 10 years at $1,085.00. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels in the future. Under these conditions, what rate of return should an investor expect to earn if he or she purchases these bonds, 5 years after the issue? 8.0861% 8.2277% 8.2251% 8.0915% 7.9829%
Based on the pro-forma statements prepared in question 2, Insignia Corporation Limited will need external financing in 2021. As such the company is considering issuing a $100,000,000 15-year bond, with an annual coupon rate of 10%, and semi-annualinterest payments. Required i. If the company anticipates that the bond will close at a yield to maturity of12%, given the company’s credit ratings and current market conditions, how much would an investor be willing to pay for $1,000 face value of this bond? ii. Compute the current yield of the bond at this price (from i).
Dyl Inc.'s bonds currently sell for $880 and have a par value of $1,000. They pay a $70 annual coupon and have a 15-year maturity, but they can be called in 5 years at $1,140. What is their yield to maturity (YTM)? a. 8.50% b. 5.80% c. 7.95% d. 8.44% e. 9.14%
Consider a one-year, 5-percent coupon bond with a face value of $100 issued by a Seabass Corporation. There is a 10 percent probability that it will default on its bonds and the risk-free interest rate (i) is 3.0%. If an investor were willing to pay $917.48 for the bond, is that investor risk-neutral or risk averse
Ezzell Enterprises' noncallable bonds currently sell for $1,218.00. They have a 5-year maturity, semi-annual coupon rate of 12.00%, and a par value of $1000. What is the bond's capital gain or loss yield?Round your answer to two decimal places. For example, if your answer is $345.6671 round as 345.67 and if your answer is .05718 or 5.7182% round as 5.72.
Adidas issued a zero-coupon bond with a five-year maturity and a $100 face value. You believe there is a 20% chance that they will default, and if they do default, you expect to receive only 55 cents per dollar of what you are promised. If you require a 6% expected return on this investment: a. what will be the price of these bonds, and 2. what will be the yield to maturity on these bonds? Note: Assume annual compounding. Question content area bottom Part 1 a. The price of these bonds is $enter your response here. (Round to the nearest cent.) b. The yield to maturity on these bonds is enter your response here%. (Round to two decimal places.)
Consider the case of Badger Corp.: Badger Corp. has 9% annual coupon bonds that are callable and have 18 years left until maturity. The bonds have a par value of $1,000, and their current market price is $1,220.35. However, Badger Corp. may call the bonds in eight years at a call price of $1,060. What are the YTM and the yield to call (YTC) on Badger Corp.'s bonds? YTM YTC Value If interest rates are expected to remain constant, what is the best estimate of the remaining life left for Badger Corp.'s bonds? 13 years 10 years 5 years 8 years If Badger Corp. issued new bonds today, the coupon rate must be for the bonds have to be issued at par.
The Loughran Corporation has issued zero-coupon corporate bonds with a five-year maturity. Investors believe there is a 40% chance that Loughran will default on these bonds. If Loughran does default, investors expect to receive 25% of their promised payoff at maturity (e.g., $0.25 cents per dollar they are promised). If investors require a 7.0% expected return on their investment in these bonds, which of the following statements most accurately describes the price (per $100 face value) and current YTM of these bonds? OA. This bond is priced at $42.78 per $100 face value with a YTM of 18.5% OB. This bond is priced at $49.91 per $100 face value with a YTM of 14.9% OC. This bond is priced at $71.30 per $100 face value with a YTM of 7.0%. OD. This bond is priced at $49.91 per $100 face value with a YTM of 7.0%. OE. This bond is priced at $70.00 per $100 face value with a YTM of 7.4%.

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