Fortune Inc. has a pure discount bond issue with a face value of $1,000 that matures in 1 year. The assets of the firm are currently valued at $1,200, but it is expected to either drop to $900 or rise to $1,500 in a year's time. If the risk-free rate is 6%, what is the value of the debt? $285.12 $292.45 $315.85 $907.55 $1,055.55
Q: Note: Do not round intermediate calculations. Round the "Interest" and "Maturity value" to the…
A: Ordinary interest is simple interest based on year 360 days.Given,Principal is $1328Interest rate is…
Q: Source Last Year - Pitches Last Year - Wins Value £52,500 £13,125 If your conversion rate from sales…
A: The conversion rate from sales pitches is a key metric in sales and marketing and it measures the…
Q: Blue Skies Bank of Florida issues a three-month (90-day) negotiable CD in the amount of $20 million…
A: CD is certificate of deposit that have interest rate specified on that and will receive amount on…
Q: Madison Inc. just issued bonds with a par value of $1,000, an annual coupon rate of 3.5%, coupons…
A: Compound = Semiannually = 2Face value = fv = $1000Coupon rate = 3.5 / 2 = 1.75%Time = t = 10 * 2 =…
Q: What is the value at the end of the 16th year of $80,000 that is invested at the beginning of the…
A: The concept of time value of money will be used and applied here. As per the concept of time value…
Q: Jupiter Explorers has $8,200 in sales. The profit margin is 5 percent. There are 5,200 shares of…
A: PE Ratio is also known as Price Earning ratio. It shown the relationship between the price of the…
Q: If the risk premium above LIBOR that the issuer must pay is 12.5 basis points, the next period's…
A: We can determine the next period coupon using the formula below:
Q: Today, Ernire bought Bond E four years ago, when the market interest rate was 10%. maturity and has…
A: Present value is a fundamental concept in finance and refers to the current worth of a sum of money…
Q: Cost of Bank Loans Gifts Galore Inc. borrowed $1.6 million from National City Bank. The loan was…
A: We require the knowledge of mortgage amortization to get to the answer. The solution below will…
Q: How much money would have to be deposited every quarter if acompany wants to have 75,000 at the end…
A: The present value of annuity with continuous compounding can be calculated using this formula,
Q: Suppose the utility function is U = E(r) - 0.5Ao2. Draw the indifference curve corresponding to a…
A: A = 3U = 0.2To draw the indifference curve for an investor with a utility function U = E(r) -…
Q: Given, Sales : $250,000 Costs : $134,000 Depreciation : $10,200 Operating expenses : $6,000…
A: Operating cash flows is the cash flows generated from normal operations - selling and distributing…
Q: A professional athlete has signed a contract worth $56 million over 5 years. Assume that value is…
A: The effective interest rates are used for the computation of current worth or annuity if the…
Q: The Day Company and the Knight Company are identical in every respect except that Day is not…
A: Day Company:Projected operating income = $1,100,000Market value of stock = $4,300,000Knight…
Q: You have $5,000 invested in a bank that pays 4.8% interest, compounded weekly. How many weeks will…
A: Compound = Weekly = 52Present Value = pv = $5000Interest rate = r = 4.8 / 52 = 0.0923076923%Future…
Q: Hewlard Pocket's market value balance sheet is given. Assets A. Original balance sheet Cash Other…
A: Stock price after cash dividend can be calculated by using equation belowStock price after cash…
Q: You find the following Treasury bond quotes. To calculate the number of years until maturity, assume…
A: Asked price refers to the specific price at which bondholder decides to trade the bond. The counter…
Q: Interest on Credit Cards. Eileen, who is currently paying $1,210 per year in finance charges to her…
A: Money has time value and money today will not be same tommorrow will loose value with time.
Q: You decide to save $431 per month in equity securities, which you anticipate earning an interest…
A: An annuity refers to a series of periodic payments made in exchange for a lump sum payment. The…
Q: Between February and March, which person had the biggest decrease regarding the number of units…
A: We can determine the decrease in sales in March using the formula below:If the change in sales is…
Q: 3. You can purchase a Treasury bill that is 95 days from maturity for $9,965. The Treasury bill ha…
A: T-bills are issued by the federal bank and issued at a discount to the face value.Giventhe face…
Q: Ying Import has several bond issues outstanding, each making semiannual interest payments. The bonds…
A: The entire face amount of all bonds that have been issued but have not yet reached their individual…
Q: How much money have you made or lost?
A: The relative worth of two currencies, or the amount of one currency that may be exchanged for one…
Q: Abner Corporation's bonds mature in 17 years and pay 7 percent interest annually. If you purchase…
A: Yield to Maturity (YTM) is the internal rate rete of return of a bond that equates all the future…
Q: A 10-year bond of a firm in severe financial distress has a coupon rate of 10% and sells for $900.…
A: YTM refers to the total return that an investor will earn by holding a bond to maturity. YTM makes…
Q: Schultz Industries is considering the purchase of Arras Manufacturing. Arras is currently a supplier…
A: Free cash flow for Shark= $7100000Growth rate for five years= 7%Growth rate for perpetuity= 4%Cost…
Q: ow does standard deviation and variance affect portfolio risk, more so than expected return?
A: The standard deviation is statistical m ea s u r e of the amount of variation from the average or…
Q: New Business Ventures, Incorporated, has an outstanding perpetual bond with a coupon rate of 11…
A: The price of a bond is equal to the present value of the par value of the bond and present value of…
Q: ybus, Inc. is considering issuing bonds that will mature in 15 years with an annual coupon rate of…
A: Price of a bond can be found as the sum of the present value of the future coupon payments and the…
Q: You want to estimate the monthly alpha and beta of AXON stock, using the index model. Suppose AXON…
A: The Single Index Model (SIM) is a financial model that investors use to analyze the risk and return…
Q: Veronica is trying to save money to do her graduate study in USA and she can invest 32,000 at annual…
A: Solution:When an amount is invested somewhere, it earns interest on it.The amount initially invested…
Q: stock price at expiration is $118.25, what is your dollar profit or loss on this investment at…
A: A call option gives the right but not the obligation to buy at the strike price. We can determine…
Q: Spot Rates 129.87 Mid Rates Bid Forward Rates 1 month 6 months 129.68 128.53 129.82 -20 -136 Ask…
A: Forward contract is the contract for the delivery in the future period it may be on discount or…
Q: Suppose that General Motors Acceptance Corporation issued a bond with 10 years until maturity, a…
A: Time = t = 10 YearsFace Value = fv = $1000Coupon Rate = 7.1%Yield to Maturity = r = 6.1%
Q: If the simple CAPM is valid, is the situation shown below possible? Portfolio Risk-free Market A O…
A: If the simple CAPM is valid, the expected return on an asset should be a function of its beta…
Q: You expect a stock to pay annual dividends of $1.39. $1.16, and $1.87 in each of the next three…
A: The price of a stock is equal to the present value of the expected dividend and the terminal value.
Q: Please rank the weekdays from the highest complaints reported to the lowest for the last 8 months of…
A: First we need to determine the total complaints received in 8 months. Then the day with the highest…
Q: A project has the following cash inflows $34,444; $39,877; $25,000; and $52,800 for years 1 through…
A: YearCash flow0 $ -104,000.001 $ 34,444.002 $ 39,877.003 $ 25,000.004 $ 52,800.00To…
Q: If a company is expected to generate annual cash flow of $500,000 and has a WACC of 12.5%, then the…
A: The valuation of a company is calculated with help of the revenue before subtracting operating…
Q: Your daughter wants to the University of Cincinnati. She is already planning to start in 10 years…
A: An annuity refers to a series of periodic payments that are made in exchange for a lump sum payment.…
Q: A 10 year loan of $2,000 is repaid with payments the end of each year. There are 2 options: (i)…
A: First we need to determine the total amount paid under the first option using the formula below:
Q: Annuities and compounding Personal Finance Problem Janet Boyle intends to deposit $280 per year in a…
A: Annual Deposit = pmt = $280Semi-annual deposit = pmt = $140Quarterly deposit = pmt = $70No of years…
Q: You have decided to purchase a new car that costs $44,500. You need to make a 20% down payment, then…
A: Present value of annuity is computed as follows:-PV = A * wherePV = Present value of annuityA =…
Q: You have the chance to participate in a project that produces the following cash flows: Cash…
A: NPV means Net Present value.It is a capital budgeting technique used for making investment…
Q: NPV of the investment IRR of the investment $ %
A: We can determine the NPV using the formula below:NPV = PV of cash inflows - Initial investment
Q: Current share price $
A: The dividend discount model will be used here. As per the dividend discount model the value of a…
Q: You've collected the following information from your favorite financial website. 52-Week Price Lo…
A: Required rate is sum of dividend yield and capital gain yield which is growth rate.Given the…
Q: Hi there, Thank you. Could you also help me with the second question? The interest rate is 12%…
A: Present value is an estimate of the present value of future cash values that may be received at a…
Q: Recall that on a one-year Treasury security the yield is 5.6100% and 6.7320 % on a two-year Treasury…
A: 2 year yield = [(1year yield)+ (expected 1 year yield in one year)/2] + Maturity Risk Premium
Q: Estimating the Opportunity Cost. Julia brings home $1,790 per month after taxes Julia's rent is $366…
A: The opportunity cost is the cost that will be incurred by making any additional purchase decisions…
Fortune Inc. has a pure discount bond issue with a face value of $1,000 that matures in 1 year. The assets of the firm are currently valued at $1,200, but it is expected to either drop to $900 or rise to $1,500 in a year's time. If the risk-free rate is 6%, what is the value of the debt?
$285.12 |
|
|
$292.45 |
|
$315.85 |
|
$907.55 |
|
$1,055.55 |
Step by step
Solved in 3 steps with 2 images
- Suppose the Schoof Company has this book value balance sheet: The notes payable are to banks, and the interest rate on this debt is 10%, the same as the rate on new bank loans. These bank loans are not used for seasonal financing but instead are part of the companys permanent capital structure. The long-term debt consists of 30,000 bonds, each with a par value of 1,000, an annual coupon interest rate of 6%, and a 20-year maturity. The going rate of interest on new long-term debt, rd, is 10%, and this is the present yield to maturity on the bonds. The common stock sells at a price of 60 per share. Calculate the firms market value capital structure.Doha plc has some surplus funds that it wishes to invest in bonds. The company requires a return of 15% on bonds, and the finance director has asked you to analyse whether it should invest in either of the following bonds that are available:Company A: Expected profit 12% bonds, redeemable at par at the end of two more years, with a current market value of QAR 95 per QAR 100 bondCompany B: Expected profit 8% bonds, redeemable at QAR110 at the end of two more years, with a current market value of QAR 95 per QAR 100 bonda. Calculate the expected value (price) of the two bonds and evaluate if either offer an appropriate return for Doha Plc.b. Critically evaluate what would be the impact on the price of bonds if Doha Plc reduces their required return.c. Critically evaluate and discuss the factors that should be considered by the directors of a company when choosing whether to use debt or equity finance for a new projectd. Recently one director has attended a finance conference, on their…Williams Industries has decided to borrow money by issuing perpetual bonds with a coupon rate of 6.5%, payable annually, and a par value of $1,000. The 1-year interest rate is 6.5%. Next year, there is a 35% probability that interest rates will increase to 8% and a 65% probability that they will fall to 5%. What will the market value of these bonds be if they are noncallable?
- In order to calculate a WACC, you first must know the firm's cost of debt and equity. For debt, a firm can issue new bonds with a 4.05% coupon rate and a maturity of 25 years. Interest is paid semi-annually. The market price of the new issue would be $1,146.01 less a 4% of par flotation cost. The face value of the bond, payable at maturity, is $1,000. What is the before-tax cost of debt for this firm (please respond with to the basis point, but without the % sign - meaning if you calculate 3.7569456%, then enter 3.76.)?A firm has some $1,000 par value bonds outstanding that pay a 12 percent interest rate. The bonds pay interest yearly and have 10 years until they mature. If bonds that bear similar risk currently earn 8 percent, how much will the firm's bond sell for today? A) $1,000 B) $805.20 C) $851.50 D) $1,268.20Mechmar Corp Berhad bonds pay $70 in annual interest, with a $1,000 par value. The bonds mature in 17 years. Your required rate of return is 8.5% per year. Calculate the value of the bond and interpret your answer. In your opinion, does the bond value change if your required rate of return (k) increase to 11% per year and in another scenario decease to 6% per year?
- You are analyzing the cost of debt for a firm. You know that the firm’s 14-year maturity, 6.60 percent coupon bonds are selling at a price of $825.00. The bonds pay interest semiannually. If these bonds are the only debt outstanding, answer the following questions: What is the current YTM of the bonds?Oriole, Inc., has bonds outstanding that will mature in eight years. The bonds have a face value of $1,000. These bonds pay interest semiannually and have a coupon rate of 4.6 percent. If the bonds are currently selling at $883.92, what is the yield to maturity that an investor who buys them today can expect to earn? Yield to maturity? What is the effective annual yield?Thatcher Corporation’s bonds will mature in 10 years. The bonds have a face value of $1,000 and an 8 percent coupon rate, paid semiannually. The price of the bond is $1,100. What is the firm’s cost (percentage rate) of borrowing money under these market conditions?
- Too Young, Inc., has a bond outstanding with a coupon rate of 6.9 percent and semiannual payments. The bond currently sells for $950 and matures in 24 years. The par value is $1,000. What is the company's pretax cost of debt?Williams Industries has decided to borrow money by issuing perpetual bonds with a coupon rate of 7 percent, payable annually, and a par value of $1,000. The one-year interest rate is 7 percent. Next year, there is a 40 percent probability that interest rates will increase to 9 percent and a 60 percent probability that they will fall to 6 percent. a. What will the market value of these bonds be if they are noncallable? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. If the company decides instead to make the bonds callable in one year, what coupon rate will be demanded by the bondholders for the bonds to sell at par? Assume that the bonds will be called if interest rates fall and that the call premium is equal to the annual coupon. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What will be the value of the call provision to the company? (Do not round…The henderson company's bonds currently sells for $1375. They pay a $120 annual coupon and have a 25-year maturity, but they can be called in 5 years at $1200. What is there YTM and their YTC, and which is "more relevant" in the sense that investors should expect to earn it?