ESSEN.OF INVESTMENTS(LOOSE)W/CONNECT<BI>
ESSEN.OF INVESTMENTS(LOOSE)W/CONNECT<BI>
11th Edition
ISBN: 9781264800919
Author: Bodie
Publisher: MCG
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Chapter 10, Problem 2WM
Summary Introduction

(a)

Introduction:

A bond is a security that creates an obligation on the issuer to make specified payments to the holder for a given period of time. The face value of the bond is the amount the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond. Yield to maturity is termed as the discount rate which makes the present payments from the bond equal to its price. In simple terms, it is the average rate of return a holder can expect from that bond.

FINRA is a Financial Industrial regulatory Authority who regulates the securities brokers and the firms in order to protect the interest of the investors.

To Discuss:

The FINRA operates the TRACE (Trade Reporting and Compliance Engine) system which reports over-the-counter secondary market trades of fixed-income securities. Find the TRACE Fact Book atwww.finra.org/trace/trace-book.

a. For each of the last three years, find the data tables, locate the table with information on corporate bond issues, excluding convertible bonds and calculate the percentage of bond that were publicly traded and the percentage that were privately traded.

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Estefan Industies has a new project available that requires an initial investment of sex million. The project will provide unlevered cash flows of $925,000 per year for the next 20 years. The company will finance the project with a debt-value ratio of 35. The company's bonds have a YTM of 5.9 percent. The companies with operations comparable to this project have unlevered betas of 1.09, 1.17, 1.28, and 1.20. The risk-free rate is 3.6 percent, and the market risk premium is 7 percent. The tax rate is 21 percent. What is the NPV of this project?
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