Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

1. Why do you think a corporation that is considering investing in a long-term project that will not generate any positive cash flow for several years would fund it by issuing zero-coupon bonds?

2. Which would you expect to have higher interest rates: debentures or mortgage-backed bonds? Please justify your response.

3. What is the difference between a "call" and a "put?" Which party in a bond transaction would prefer the "call" and which the "put?"

4. Would you classify the relationship between bond ratings and the required return on the bond issue as direct or inverse? Why?

5. The price (pv) of a bond is determined by the relationship of the bond's current yield-to- maturity (market rate of interest) to the bond's coupon rate. Please describe under what circumstances the bond will trade (1) at par, (2) at a discount and (3) at a premium in the market.

6. Why is preferred stock referred to as a "hybrid?" Compare and contrast its specific features to bonds and common stock.

7. How is the Dividend Discount Model of valuing equities similar to the method we learned to value bonds?

Calculation Problems (please show your work for possible partial credit):
1. We learned that the current market price of a bond is the total of the present values of (1) the principal/face/par value (future value) of the bond and (2) the income stream of interest payments (annuity). For a $1,000 par bond maturing in 10 years with a coupon rate of 5% making annual interest payments and a market yield (ytm) of 5%, find out the PV's of (1) and (2) above. (Hint: combined, they will total the par or future value of the bond of $1,000 since ytm = coupon rate). Show your calculations. (10 pts.)

2. What would you be willing to pay (pv) for a 20-year bond that has a maturity value of $1,000 and makes semi-annual interest payments of $40, if you require a 10% annual yield? (5 pts.)

3. What would be the price of a bond that pays $37.50 interest every 3 months that will mature in 15 years with a $1,000 face amount when you require an annual rate of return of 12%? (5 pts.)

4. A share of preferred stock pays an annual dividend of $6 per share. If investors require a 12% return, what is the price of this preferred stock? (5 pts.)

5. The most recent dividend on Spirex Corp's common stock was $4.00 and the expected growth rate is 10%. If the required rate of return is 20%, what is the highest price you should be willing to pay for this stock? (5 pts.)

6. Suppose you are willing to pay $30 today for a share of stock which you expect to sell at the end of the year for $32. If you require an annual rate of return of 12%, what must be the amount of the annual dividend you expect to receive for the year? (5 pts.)

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M925167

Have any Question? 


Related Questions in Basic Finance

Why is the capms assumption that investors can borrow and

Why is the CAPM's assumption that investors can borrow and lend at the risk-free rate questionable? What is meant by the "homogeneous assumption" in the CAPM? What is meant by the law of one price, and what does it imply ...

Healthy foods just paid its annual dividend of 162 a share

Healthy Foods just paid its annual dividend of $1.62 a share. The firm recently announced that all future dividends will be increased by 2.1 percent annually. What is one share of this stock worth to you if you require a ...

A firm has a debt-to-equity ratio of 062 its cost of equity

A firm has a debt-to-equity ratio of 0.62. It's cost of equity is 20%, and it's cost of debt is 15%. If the corporate tax rate is 34%, what would it's cost of equity be if the firm was all equity financed? (Answer in dec ...

1 which type of error do researchers usually regard as more

1. Which type of error do researchers usually regard as more serious? Why? 2. Explain what it means if a researcher sets the alpha level for a statistical test at .05. 3. What does it mean if the difference between two m ...

1 in addition to the key words you should also be able to

1. In addition to the key words, you should also be able to define the following terms: third-variable problem directionality problem confounding variable random process placebo mundane realism experimental realism 2. De ...

Q1 what is the market value of the following bondcoupon

Q1. What is the market value of the following bond? Coupon 8% Maturity date 2038 Interest paid semiannually Par Value $1000 Market interest rate 10% Q2. What is the market value of the following bond? Coupon 9% Maturity ...

The delta company has issued a total of 25000000 shares of

The Delta Company has issued a total of 25,000,000 shares of common stock at par(its value to the firm is $25, 000,000. The dividend yield is 6%. The company also has $15,000,000 of bonds(also sold at par) with a coupon ...

Assignment exploring the sec 10-kwe are going to explore

Assignment: Exploring the SEC 10-K We are going to explore our company's SEC-10K. For most, if not all classmates, this will be the first time you have ever seen or read this type of report. Note: the SEC 10-K is an audi ...

1 what is the function of the optional delivery commitment2

1. What is the function of the optional delivery commitment? 2. Name five important characteristics of mortgage pools. Tell why each is important. 3. Why was the formation of FHLMC so important?

1 locate a research report that contains a replication of

1. Locate a research report that contains a replication of previous research. Identify the purpose of the replication and the type of replication that was used. What are the important findings of the research? 2. Develop ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen