Investments
11th Edition
ISBN: 9781259277177
Author: Zvi Bodie Professor, Alex Kane, Alan J. Marcus Professor
Publisher: McGraw-Hill Education
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Question
Chapter 16, Problem 16PS
a.
Summary Introduction
To calculate: The value of the
Introduction:
Bond price: The bond price is the actual price of the bond at which the investor can buy or sell that bond. The bond price is the addition of the current values with coupon payments and current values of par value at maturity.
b.
Summary Introduction
To calculate: The value of the predicted price by duration rule.
Introduction:
Predicted value of the bond price: The predicted value of the bond price is a future estimation of the price. This price is calculated by the coupon value of the bond. The duration rule establishes a relation between price and interest rates.
c.
Summary Introduction
To calculate: The value of predicted price using duration rule with convexity.
Introduction:
Predicted value of the bond price: The predicted value of the bond price is a future estimation of the price. This price is calculated by the coupon value of the bond. The duration rule establishes a relation between price and interest rates.
d.
Summary Introduction
To calculate: The percentage error in price and give conclusion about the accuracy with two rules.
Introduction:
Error of quantity: The error of any quantity is the comparison between the actual value and measured value. For every quantity the acceptable value of error is 10%, 1% error is a high value of error. The value of error should be less than 1%.
e.
Summary Introduction
To calculate: The bond price, predicted price change and error when YTM increases to 9%.
Introduction:
Bond price: The bond price is the fair price of the bond. The predicted value is measured value for a future time. The error of any quantity is the difference of measured value to the actual value of that quantity.
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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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Chapter 16 Solutions
Investments
Ch. 16 - Prob. 1PSCh. 16 - Prob. 2PSCh. 16 - Prob. 3PSCh. 16 - Prob. 4PSCh. 16 - Prob. 5PSCh. 16 - Prob. 6PSCh. 16 - Prob. 7PSCh. 16 - Prob. 8PSCh. 16 - Prob. 9PSCh. 16 - Prob. 10PS
Ch. 16 - Prob. 11PSCh. 16 - Prob. 12PSCh. 16 - Prob. 13PSCh. 16 - Prob. 14PSCh. 16 - Prob. 15PSCh. 16 - Prob. 16PSCh. 16 - Prob. 17PSCh. 16 - Prob. 18PSCh. 16 - Prob. 19PSCh. 16 - Prob. 20PSCh. 16 - Prob. 21PSCh. 16 - Prob. 22PSCh. 16 - Prob. 23PSCh. 16 - Prob. 24PSCh. 16 - Prob. 25PSCh. 16 - Prob. 1CPCh. 16 - Prob. 2CPCh. 16 - Prob. 3CPCh. 16 - Prob. 4CPCh. 16 - Prob. 5CPCh. 16 - Prob. 6CPCh. 16 - Prob. 7CPCh. 16 - Prob. 8CPCh. 16 - Prob. 9CPCh. 16 - Prob. 10CPCh. 16 - Prob. 11CPCh. 16 - Prob. 12CPCh. 16 - Prob. 13CP
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