parts a-c

Coupon Bond

Note: You need to use a financial calculator or Excel to solve c. and g. in this problem. Provide the direct answer

to the question

and be sure to list all of the inputs to the calculator or Excel that were necessary to arrive at

your answer.

Consider a $6,000 8-yr coupon bond with a 3.5% coupon rate.

a.

What price can this bond be purchased for if the market interest rate is 5%? (answer in long form)

b.

If this bond is purchased for $5,000, what is the current yield?

c.

If this bond is purchased for $5,000, what is its yield to maturity (YTM)?

d.

Explain why the Current Yield is either greater than or less than the coupon rate.

e.

Explain why the YTM is either greater than or less than the current yield.

f.

After five years, the market interest rate has fallen to 2%. How much can this bond be sold for? (Answer in

long form.)

g.

Compute the original owner’s holding period return if the bond is originally purchased for $4,700.

4. Calculating taxable income

For 2016, the personal exemption amount is $4,050. The 2016 standard deduction is $6,300 for unmarried taxpayers or married taxpayers filing separately, $12,600 for married taxpayers filing jointly, and $9,300 for taxpayers filing as head of household.

Calculating Heidi’s Taxable Income

Heidi is an unmarried person filing single. Calculate Heidi’s 2016 taxable income by filling in the worksheet. Enter adjustments, deductions, and exemptions as negative numbers. If your answer is zero, enter "0".

• Heidi will earn $90,965 in wages this year.

• She contributed $4,000 to an IRA.

• She received a gift from her parents to put a down payment on a new car totaling $5,000.

• She uses the standard deduction.

• She donated $1,000 to charity.

• She is entitled to one exemption.

Synovec Corp. is experiencing rapid growth. Dividends are expected to grow at 28 percent per year during the next three years, 18 percent over the following year, and then 5 percent per year, indefinitely. The required return on this stock is 11 percent and the stock currently sells for $82 per share. What is the projected dividend for the coming year?

Paymaster Enterprises has arranged to finance its seasonal​ working-capital needs with a​ short-term bank loan. The loan will carry a rate of 14 percent per annum with interest paid in advance​ (discounted). In​ addition, Paymaster must maintain a minimum demand deposit with the bank of 11 percent of the loan balance throughout the term of the loan. If Paymaster plans to borrow ​$100 comma 000 for a period of 6 ​months, what is the annualized cost of the bank​ loan?

6. In order to plan for their child’s college education two parents are trying to decide on a savings goal. The parents would like to be able to provide $10,000 each year for four years to assist in paying for college expenses. If the parents are confident that their investments will grow at an effective annual interest rate of 5%:

(a) How much should the parents try to save before their child goes to college to completely cover these payments?

(b) If the parents have 10 years to accumulate these savings, design a savings plan(with level payments) which will allow them to meet this goal.

Bond Bill

a) percentage change in price:

b) percentage change in price:

Bond Ted

a) percentage change in price:

b) percentage change in price:

1) Which one of the following statements is correct?

A) The standard deviation of the returns on Treasury bills is zero.

B) Large-company stocks are historically riskier than small-company stocks.

C) The standard deviation is a means of measuring the volatility of returns on an investment.

D) A risky asset will always have a higher annual rate of return than a riskless asset.

E) There is an indirect relationship between risk and return.

2) Christine owns a stock that dropped in price from $43.80 to 39.49 over the past year. The dividend yield on that stock is 1.8 percent. What is her total return on this investment for the year?

A) -11.31 percent

B) -10.49 percent

C) -9.91 percent

D) -9.59 percent

E) -8.04 percent

3) Jack owned a stock for five months and earned an annualized rate of return of 6 percent. What was the holding period return?

A) 2.37 percent

B) 2.42 percent

C) 2.46 percent

D) 2.64 percent

E) 2.72 percent

4) An asset has an average annual historical return of 11.6 percent and a standard deviation of 17.8 percent. What range of returns would you expect to see 95 percent of the time?

A) -41.8 to + 65.0 percent

B) -34.4 to + 53.6 percent

C) -24.0 to + 47.2 percent

D) -6.2 to + 29.4 percent

E) -5.4 to + 41.0 percent

What is bankruptcy? What is the difference between liquidation and
reorganization? What is the main benefit of reorganization?

The Sheridan Department of Transportation has issued 25-year bonds that make semiannual coupon payments at a rate of 10.325 percent. The current market rate for similar securities is 11.8 percent. Assume that the face value of the bond is $1,000.

Suppose the bond were to mature in 12 years. What will be the bond’s price if rates in the market

(i) decrease to 9.80 percent or

(ii) increase to 12.8 percent?

Why is it important that, in countries with high inflation, financial statements be adjusted for inflation? Consider understated asset values, understated expenses, overstated income, and overstated equity and how these may affect a company’s overall strategy when responding.

I need some guidance on question 1c.

(1) (A) Between 2001 and 2011, the real (2018 US $) price of a barrel of oil rose at a rate of about 13% per year in real terms to around $124 per barrel in 2011, but the real price fell to $46 per barrel in 2016, before rebounding in 2018 to $71 per barrel. If prices continue increasing from their 2018 price of $71 per barrel through 2028 at a more modest rate of 7% year in real terms, what will be the price of oil in 2028? Assume these prices are for December 31 of each year.

(B) Suppose the price of gasoline in 2018 was $2.75 per gallon, and every $1 per barrel increase in the price of oil causes the price of gasoline to increase by $0.025 per gallon. If SouthWestern Ohio gasoline distribution company bought a forward contract for delivery of gasoline from Exxon in 2019 for $2.80 per gallon and in 2020 for $2.80 per gallon, based on your oil price projection in (A), will these contracts save them money? Be sure to show how you arrived at your answer.

(C) Suppose you are the operator of the East Lima International Refinery LLC, and you buy a call option for crude oil to refine in 2020. Your call option has a strike price of $59, with no option premium, and it expires on December 31, 2019. If prices rise as predicted above, will you make money on the call option? If so, how much? If not, what do you do on December 31, 2019 when the option expires?

Oriole Information Systems management is planning to issue 10-year bonds. The going market yield for such bonds is 9.300 percent. Assume that coupon payments will be made semiannually. Management is trying to decide between issuing an 9 percent coupon bond or a zero coupon bond. Oriole needs to raise $1 million.

What will be the price of an 9 percent coupon bond?

How many 9 percent coupon bonds would have to be issued?

What will be the price of a zero coupon bond?

How many zero coupon bonds will have to be issued?

Delta Partners is an investment firm specialising in corporate advice, particularly in regard to raising
finance and company valuation. One of its clients, Pagoda Industries Ltd, recently approached Delta
Partners seeking advice and assistance in regard to raising additional finance. Pagoda has now asked
Delta Partners for advice on whether to introduce a new product in its manufacturing division.
Pagoda Industries Ltd is a large company listed on the Australian Stock Exchange. It is a diversified
company with manufacturing and trading divisions operating in a number of industries. Pagoda’s
research department has developed a new information technology product which is expected to
appeal to the corporate market. Because of the rapid advances in information technology, the
product is expected to have a life of five years before it becomes obsolete. Consequently, the project
would be terminated after five years.
Pagoda has put together the following information about the product:
Cost of new plant and equipment $7,900,000
Transport and installation costs $100,000
Unit Sales:
Year Units Sold
1 70,000
2 120,000
3 140,000
4 80,000
5 60,000
Sales Price per Unit:
Years 1-4 $300
Year 5 $260
Variable Cost per Unit $180
Annual Fixed Costs $200,000
Net Working Capital:
An initial investment of $100,000 in net working capital is required to get the project started.
Additionally, net working capital equal to 10 per cent of the value of sales will be required each year
(including year one).
The plant and equipment are expected to have a salvage value of $500,000 at the end of the
project’s life. The company tax rate is 30 per cent. Pagoda’s required return for this project is 15 per
cent.
Required: As a financial analyst for Delta Partners you have been asked to:
a) Calculate the yearly cash flows and the yearly net after-tax cash flow associated with the
project
b) Calculate the Net Present Value (

The verbrugge publishing company's 2019 balance sheet and income statement are as follows

Balance Sheet

Current assets $300

Net Fixed Assets 200

Total assets 500

Current Liabilities $40

Advance Payments by customers $80

Noncallable preferred stock $6 coupon

$110 par value (1,000,000 shares) $110

Callable preferred stock, $10 coupon

no par, $100 call price (200,00) shares $200

Common stock, $2 par value

(5,000,000 shares) $10

Retained Earnings $60

Total liabilities and equity $500

Income Statement

Net Sales $540

Operating Expense $516

Net Operating income $24

Other income $4

EBT $28

Taxes(25%) $7

Net Income $21

Dividends on $6 preferred $6

Dividends on $10 preferred $2

Income available to common stockholders $13

Verbrugge and its creditors have agreed upon a voluntary reorganization plan. In this plan, each share of the noncallable preferred will be exchanged for 1 share or $2.40 preferred with a par value of $35 plus on 8% subordinated income debenture with a par value of $75. The callable preferred issue with be retired with cash generated by reducing current assets.

a) Assume that the reorganization takes place and construct the projected balance. Show the new preferred stock at is par value. What is the total assets? For debt? For preferred stock?

b) Construct the projected income statement. What is the income available to common shareholders in the proposed recapitalization.

c) What were the total cash flows received by the noncallable preferred stockholders prior to the reorganization? What were the total cash flows to the original noncallable preferred stockholders after the reorganization? What was the new income to common stockholders before and after reorganization

d)Required pre-tax earnings are defined as the amount that is just large enough to meet fixed charges. What are the required pre-tax earnings before and after recapitalization?

e) How is the debt ration affected by reorganization? Suppose you treated preferred stock as debt and calculated the resulting debt ratios, How are these ratios affected? If you were a holder of Verbrugge's common stock, would you vote in favor or the reorganization? Why or Why not?

Your client is 37 years old. She wants to begin saving for retirement, with the first payment to come one year from now. She can save $7,000 per year, and you advise her to invest it in the stock market, which you expect to provide an average return of 6% in the future.

1. If she follows your advice, how much money will she have at 65? Do not round intermediate calculations. Round your answer to the nearest cent.

2. How much will she have at 70? Do not round intermediate calculations. Round your answer to the nearest cent.

3. She expects to live for 20 years if she retires at 65 and for 15 years if she retires at 70. If her investments continue to earn the same rate, how much will she be able to withdraw at the end of each year after retirement at each retirement age? Do not round intermediate calculations. Round your answers to the nearest cent.

   Annual withdrawals if she retires at 65:

   Annual withdrawals if she retires at 70: