The bonds mature in 8 years, have a face value of $1,000, and a yield to maturity of 8.5%. What is the price of the bonds? 50*11.44+1000*.5138 = 1086 • 5-13 Yield to Maturity and Current Yield You just purchased a bond that matures in 5 years. The bond has a face value of $1,000 and has an 8% annual coupon. The bond has a current yield of 8.21%.
6 percent in the second year. c. 5 percent in the third year. What would be the third year future value? (LG4-3) FV = 350 × (1 + 0.08) (1 + 0.06) (1 + 0.05) 350 × 1.08 × 1.06 × 1.05 Answer: 420.71 4-8 Compounding with Different Interest Rates A deposit of $750 earns interest rates of 10 percent in the first year and 12 percent in the second year. What would be the second year future value?
For a preferred stock with the dividend amount of $2.00 each quarter, what is the PV of it with an annual discount rate of 8%? If the price of the preferred stock is $80, what is the yield (ROI, APR) of this security? a. $60, 8% b. $80, 8% c. $60, 10% d. $80, 10% e. $100, 10% Answer: e V0 = D/k = 8/0.08 = $100.
8% b. 8% 2. a. A $1,000 bond has a 7.5 percent coupon and matures after 10 years. If current interest rates are 10 percent, what should be the price of the bond? Price = $1,000 x 0.3855 + $1,000 x 7.5% x 6.1446 Price = $385.50 + $460.85 Price = $846.35 b.
Chapter 4 (pages 132–136): 3. Calculate the future value of $2000 in a. five years at an interest rate of 5% per year; FV5= 2,000*1.05^5=2, 552.56 b. ten years at an interest rate of 5% per year; and FV10= 2,000*1.05^10=3,257.79 c. five years at an interest rate of 10% per year. FV5=2,000*1.1^5=3,221.02 d. Why is the amount of interest earned in part (a) less than half the amount of interest earned in part (b)? The amount of interest is less in part a than in part b because in the last 5 years you get interest on the interest earned in the first 5 years as well as interest on the original $2,000. 4.
cost of equity =I used the 20 year at 5.74%+Geometric mean=5.9%x most recent beta .69=9.81% Cost of Debt I used Yield to maturity to find cost of debt From Exhibit 4 PV= 95.60 N=40 (20years x 2) since its paid semiannually Pmt=-3.375 (6.75/2) FV=-100 Comp I = 3.58% (semiannual) 7.16% (annual) After tax cost of debt = 7.16%(1-38%) = 4.44% E = market value of the firm's equity To find Market value of Equity you multiply share price by amount of shares $42.09x273.3= 11503. D = market value of the firm's debt I valued book value of debt at 1,291 Then divide 11503/(11503+1291)=89.9 so the weight for debt is 10.1 percent When I calculated WACC 4.44%x.101+9.81%x.899= 9.27% Cohen made a few mistakes when she calculated her WACC. First, she used historical data in
$500,000 at 8.25% = Interest at $41,250 With a $500,000 loan the 20% compensating balance requirement would be $100,000 which leaves $400,000 in available funds. To calculate the effective rate, divide interest by available funds. $41,250/400,000 = 10.312% Loan with fee added. $500,000 at 9.75% = interest at $48,750 The interest plus the fee $48,750 + $5,500 = $54,250 To calculate the effective rate, divide the interest plus fees by the loan amount, $54,250/$500,000 =10.850% The loan with the compensating requirement has the lower effective cost at 10.312%. b.
UNIT 4 Exam Review 1) You have purchased $70,000 worth of goods. The dealer is giving you terms of 3/10, n/60. You were billed on March 15 and given a loan rate of 6.5%. If you take out a loan to take advantage of the discount, how much do you really save by getting the loan and taking advantage of the discount, but still paying interest? Answer: Amount of discount = 70,000 * .03 = $2100.
Text Problem Sets and Concept and Principles Summary FIN 571 Text Problem Sets and Concept and Principles Summary Problem A3: (Bond valuation) General Electric made a coupon payment yesterday on its 6.75% bonds that mature in 8.5 years. If the required return on these bonds is 8% APR, what should be the market price of these bonds? PMT -33.75 FV -1000 N 17 Rate 4% Market Price $923.96 Fair Value of a bond = C/r*(1-1/(1+r)^n)+M/(1+r)^n Assuming that it’s a semi-annual bond with face value of $1000 A13. (Required return for a preferred stock) Sony $4.50 preferred is selling for $65.50. The preferred dividend is non-growing.