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

1 distinguish between the operations of a mortgage banker

1. Distinguish between the operations of a mortgage banker and a mortgage broker. What are the five major minimum standards that an independent mortgage broker or loan office must pass to be licensed with the NMLS? 2. Wh ...

Use wwwmsncomto find financial statements for any for

Use www.msn.comto find financial statements for any "for profit" company in the computer hardware industry. enter the company symbol go to menu on left side of screen go to financial results go to financial ratios Comple ...

Now that tony has seen the quality of your work he is

Now that Tony has seen the quality of your work, he is considering promoting you into a financial analyst position. However, you must still prove your analytical skills. He specifically wants to know the following: • Do ...

1 modify the eoq formula for the case where the holding

1. Modify the EOQ formula for the case where the holding cost is a concave function of the number of items kept in inventory. 2. Devise an optimal inventory policy for the EOQ model with a finite time horizon TH . 3. Dra ...

You borrow 75000 for 30 years at 11 interest compounded

You borrow $75,000 for 30 years at 11% interest compounded annually. 1. The value of the property is $100,000, PGI= $20,000, vacancy rates are 8%, and operating expenses are $81,000. 2. Calculate the annual debt service. ...

Design grammars for the following languagesa the set of all

Design grammars for the following languages: a) The set of all strings of 0s and 1s such that every 0 is immediately followed by at least one 1. ! b) The set of all strings of 0s and 1s that are palindromes; that is, the ...

Wat is the resilience of the bolts and joint this time

What is the resilience of the bolts and joint this time? What is the stiffness ratio of this eccentric joint? By how much does the tensile load of 7.40 kips increase the tension in the bolts and reduce the clamping force ...

Why do you suppose countries impose foreign exchange

Why do you suppose countries impose foreign exchange controls? Do you think that, long-term, foreign exchange controls will encourage or discourage inward foreign investment?

1 which of the gaps in figure 3- 1 do you think represents

1. Which of the gaps in Figure 3- 1 do you think represents the major problem for most firms? How can a company attempt to eliminate the knowledge gap? The communications gap? 2. Compare and contrast the customer service ...

Assume that european call and put options exist on a stock

Assume that European call and put options exist on a stock. That stock, however, is the target of a takeover in which an acquiring firm offers a fixed price for the stock. The takeover is almost certain to occur shortly ...

  • 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