BOND VALUATION PROBLEMS

I.DETERMINE BOND VALUES BASED ON ANNUAL, SEMI-ANNUAL,QUARTERLY AND MONTHLY INTEREST PAYMENTS FOR THE FOLLOWING:

1.YTM=10%, 5.5 YEARS TO MATURITY, WITH COUPON RATE OF 14.5%

2.IRR=12.75%, 23 YEARS 3 MONTHS TO MATURITY, COUPON=8.94%

3.CURRENT MARKET RATE=4.5%, 35 MONTHS TO MATURITY, ANNUAL INTEREST INCOME OF $175

4.REQUIRED RATE=20.35%, 19.333 YEARS TO MATURITY, CURRENT YIELD EQUAL TO 20% WHEN PRICE=$900

5.YTM=15%, 9 YEARS TO MATURITY, CURRENT YIELD OF 20% WHEN PRICE=$750

BOND YIELD PROBLEMS

II.DETERMINE ALL POSSIBLE AND APPROPRIATE RATES OF RETURN BASED ON ANNUAL, SEMI-ANNUAL, QUARTERLY AND MONTHLY INTEREST PAYMENTS.

1.PRICE=$897.50, MATURITY=12 YEARS 180 DAYS, CURRENT YIELD=10% BASED ON CURRENT PRICE

2.PRICE=92.5% OF PAR, 5.5 YEARS TO MATURITY, COUPON OF 8%

3.PRICE=$979.50, CURRENT YIELD=11.23%

4.PRICE=$1275.75, COUPON YIELD=10.9%

5.PRICE=$2057, ANNUAL INTEREST OF $145.25, 7.5 YEARS TO maturity

A 3 year coupon bond, issued at $946.54, pays annual coupon and has a face value of $1000. Use the standard amortization table below to answer these questions:

Fill the missing number in E4

a. $941.13 b.$980.12 c. $981.13 d. 986.54 e. $1,005.41

A speculator purchased the bond for $946.54 at issuance, pocketed the first coupon at t=1 and then immediately sold the bond at its actual market price, which was different from $963.33. He managed to earn higher than YTM for his 1-year holding price. What must be the YTM for the buyer who took over the bond from the speculator, assume this buyer holds the bond for the remaining 2 years till maturity? Select the most accurate answer?

A. <7% b. <6% c. 5-6% d. 4% e. >3%

How are stock market indices constructed? Discuss the reasons why their coverage and construction vary.

  Home Place​ Hotels, Inc., is entering into a​ 3-year remodeling and expansion project. The construction will have a limiting effect on earnings during that​ time, but when it is​ complete, it should allow the company to enjoy much improved growth in earnings and dividends. Last​ year, the company paid a dividend of ​$4.20. It expects zero growth in the next year. In years 2 and​ 3, 5​% growth is​ expected, and in year​ 4, 16​% growth. In year 5 and​ thereafter, growth should be a constant 9​% per year. What is the maximum price per share that an investor who requires a return of 17​% should pay for Home Place Hotels common​ stock?

You sell short 200 shares at $50 per share. You post the 50% margin required for the short sale. Assume you earn no interest on your margin funds, nor pay any interest on the loan of shares. The company stock pays dividends of $0.33 per share every quarter. What is your rate of return on this position, if you close it out at $42 per share after one year? Enter answer in percents, accurate to 2 decimal places.

Computech Corporation is expanding rapidly and currently needs to retain all of its earnings; hence, it does not pay dividends. However, investors expect Computech to begin paying dividends, beginning with a dividend of $0.50 coming 3 years from today. The dividend should grow rapidly—at a rate of 35% per year—during Years 4 and 5; but after Year 5, growth should be a constant 7% per year. If the required return on Computech is 13%, what is the value of the stock today?

Compute the price of a $1,000 par value, 11 percent (semi-annual payment) coupon bond with 22 years remaining until maturity assuming that the bond's yield to maturity is 17 percent? (Round your answer to 2 decimal places and record your answer without dollar sign or commas).

You are considering a 15-year, $1,000 par value bond. Its coupon rate is 8%, and interest is paid semiannually. If you require an "effective" annual interest rate (not a nominal rate) of 7.6420%, how much should you be willing to pay for the bond? Do not round intermediate calculations. Round your answer to the nearest cent.

$________

Lourdes Corporation's 12% coupon rate, semiannual payment, $1,000 par value bonds, which mature in 30 years, are callable 4 years from today at $1,075. They sell at a price of $1,252.76, and the yield curve is flat. Assume that interest rates are expected to remain at their current level.

What is the best estimate of these bonds' remaining life? Round your answer to the nearest whole number._____years

If Lourdes plans to raise additional capital and wants to use debt financing, what coupon rate would it have to set in order to issue new bonds at par?

1. Since Lourdes wishes to issue new bonds at par value, the coupon rate set should be the same as that on the existing bonds.
2. Since Lourdes wishes to issue new bonds at par value, the coupon rate set should be the same as the current yield on the existing bonds.
3. Since interest rates have risen since the bond was first issued, the coupon rate should be set at a rate above the current coupon rate.
4. Since the bonds are selling at a premium, the coupon rate should be set at the going rate, which is the YTC.
5. Since the bonds are selling at a premium, the coupon rate should be set at the going rate, which is the YTM.

You are evaluating a proposed expansion of an existing subsidiary located in Switzerland. The cost of the expansion would be SF21 million. The cash flows from the project would be SF5.5 million per year for the next five years. The dollar required return is 12 percent per year, and the current exchange rate is SF1.07. The going rate on Eurodollars is 6 percent per year. It is 3 percent per year on Swiss francs. a. Convert the projected franc flows into dollar flows and calculate the NPV. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Enter your answer in dollars, not in millions, e.g., 1,234,567.) NPV $ b-1. What is the required return on franc flows? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Return on franc flows % b-2. What is the NPV of the project in Swiss francs? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Enter your answer in francs, not in millions, e.g., 1,234,567.) NPV SF b-3. What is the NPV in dollars if you convert the franc NPV to dollars? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Enter your answer in dollars, not in millions, e.g., 1,234,567.) NPV $

1. Is cost of capital of a firm determined by the source of the funds or the use of funds? Explain.
2. What are the advantages and disadvantages of using CAPM to calculate cost of equity.
3. The Gordon Growth Model can be used to estimate cost of equity. Why is this method not ideal?
4. Explain how you would calculate beta of a stock.
5. Can a firm’s beta change over time? How would you adjust your calculation of beta to reflect a change of business?
6. Why is the coupon rate of a bond not used for calculating cost of debt?
7. Why do we prefer to use market value weights of debt and equity when calculating WACC?
8. A firm has preferred shares and multiple bond issues. How do you adjust your WACC calculation?
9. When is it appropriate to use WACC as the discount rate when determining the NPV of a project?
10. What is a consequence of using WACC as the discount rate for all projects of a firm?

On January 1, 2018, Luplow Corp issued 5-year bonds with a total face value of $6,000,000 and a stated/contract interest rate of 3%. Interest on the bonds is paid annually on December 31 of each year of the bond’s life. The bonds are issued to provide an effective (market) interest rate of 3.5%

The cash proceeds from issuing the bonds on 1/1/18 is

The amount of interest expense recognized in Luplow’s 2019 income statement is

The bonds carrying value (book value) reported in Luplow’s year-end 12/31/20 balance sheet

The amount of interest expense recognized in Luplow’s 2021 income statement is

What is the total interest expense recognized over the entire life of the bonds?

Your firm needs new equipment that costs $80,000 and requires $20,000 in maintenance for each year of its three year life. After three years, the salvage value will be zero. The machine falls into the Class 10 equipment category (CCA rate 30%). Assume a tax rate of 34% and a discount rate of 10%. Compute the depreciation tax shield for year 3. *Note: A CCA table is required for this question. PVCCATS does not apply.