There is a bond that pays $100 per year interest, with a $1,000 par value. It matures in 15 years. The market required yield to maturity on a comparable bond is 12%.

1. What is the value of the bond?
2. How does the value change if the yield to maturity on a comparable bond increase to 15%? What if it decreases to 8%.
3. Explain the above questions (part b) with the concepts of interest rate risk, premium bonds and discount bonds.
4. Recalculate the answer in b, with the assumption that the bond matures in 5 years (instead of 15 years).
5. Explain the above questions (part d) with the concepts of interest rate risk, premium bonds and discount bonds.

3) Ravi invests $10,000 in an investment account that pays 4% compounded semi-annually. Ravi takes each interest payment and invests it in a savings account that pays 1% compounded monthly.

a) How much money does Ravi have at the end of 10 years?

b) What is the effective annual rate he earned over 10 years?

Calculation of individual costs and WACC: Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following​ weights: 40​% ​long-term debt, 10​% preferred​ stock, and 50​% common stock equity​ (retained earnings, new common​ stock, or​ both). The​ firm's tax rate is 21​%.

Debt: The firm can sell for ​$1020 a 10​-year, ​$1000​-par-value bond paying annual interest at a 7.00​% coupon rate. A flotation cost of 3​% of the par value is required.

Preferred stock: 8.00​% ​(annual dividend) preferred stock having a par value of ​$100 can be sold for ​$98. An additional fee of ​$2 per share must be paid to the underwriters.

Common stock: The​ firm's common stock is currently selling for ​$59.43 per share. The stock has paid a dividend that has gradually increased for many​ years, rising from ​$2.70 ten years ago to the ​$4.00 dividend​ payment, Upper D0​, that the company just recently made. If the company wants to issue new new common​ stock, it will sell them ​$1.50 below the current market price to attract​ investors, and the company will pay ​$2.00 per share in flotation costs.  

a.  Calculate the​ after-tax cost of debt.

b.  Calculate the cost of preferred stock.

c.  Calculate the cost of common stock​ (both retained earnings and new common​ stock).

d.  Calculate the WACC for Dillon Labs.

1) Carlos has borrowed $8,000 for 8 years at 6% compounded semi-annually. He will repay interest every 6 months plus principal at maturity. He will also deposit X every 6 months into a sinking fund paying 5% compounded semi-annually to pay off the principal at maturity.

a) Find X.

Carlos goes bankrupt at the end of year 6, just after making his interest payment and sinking fund deposit. The bank confiscates the money in the sinking fund, but gets no further payments.

b) How much money does the bank lose as a result of the loan default at the end of year 6?

c) Over the lifetime of the loan, how much money did the bank collect? Was it more or less than the amount of the original loan?

d) Assuming the bank re-invested all of Carlos payments at 6% (compounded semi-annually), how much money does the bank have at the end of 6 years? What is the equivalent yield (compounded semi-annually) they made on their initial loan?

You have some extra cash this month and you are considering putting it toward your car loan. Your interest rate is 7.3 %7.3%​, your loan payments are $ 675$675 per​ month, and you have 3636 months left on your loan. If you pay an additional $ 1 comma 400$1,400 with your next regular $ 675$675 payment​ (due in one​ month), how much will it reduce the amount of time left to pay off your​ loan? ​(Note: Be careful not to round any intermediate steps less than 6 decimal​ places.)

Why would organizations ever issue common stock if it is so expensive? minimum 200 words

why do we need financial intermediaries in any economy ? explain clearly

Kinky Copies may buy a high-volume copier. The machine costs $100,000 and this cost can be fully depreciated immediately. Kinky anticipates that the machine can actually be sold in 5 years for $30,000. The machine will save $20,000 a year in labor costs but will require an increase in working capital, mainly paper supplies, of $10,000. The firm’s tax rate is 21%, and the discount rate is 8%. What is the NPV of the project?

Using an elaborate spreadsheet based on guidance from my textbook, I calculated that NPV is 41,959.91. Am I on the right track?

1). ABC Corporation’s stock price is trading at $75. If the company's last dividend payment was $5 what is the dividend grow rate average into the foreseeable future if required rate of return is 12% ?

2). Suppose Barbara looks out in the morning and sees a clear sky so decides that a picnic for lunch is a good idea. Last night the weather forecast included a 100% chance of rain by midday but Barbara did not watch the local news program. Is Barbara's prediction of good weather at lunch time rational? Why or why not?

3). If a corporation announces that it expects quarterly earnings to increase by 25% and it actually sees an increase of 22%, what should happen to the price of the corporation's stock if the efficient markets hypothesis holds, everything else held constant?

Jimstan & Jimstan Corp. can sell a new 10-year bond with an annual coupon of 5.5% and a face value of $1,000 for $1,206.33. The company will incur flotation costs of $40 per bond and has a tax rate of 27%.

Part 1

What are the net proceeds from selling the bond?

Nd=P−F=1,206.33−40=Nd=P-F=1,206.33-40= 1,166.33 Correct ✓

Part 2

What is the company's pre-tax cost of debt?

The three methods of managing risk are: Loss control Loss financing Internal risk reduction Discuss these, making specific reference to how they apply to the role of a treasury risk manager

You are a new Irish based portfolio manager serving international clients. You have

€500 million of capital to invest and are currently formulating an investment and asset

allocation strategy.

Assuming your investment holding period is medium term (5 to 7 years), outline how

you would construct your portfolio and apportion capital to various assets.

Please outline your overall investment philosophy and general viewpoint on potential

returns during the holding period.

In terms of specific allocation please indicate the reasoning behind the asset selection.

considering you are a moderate investor

Full Limo Inc. offers high-end transportation services between the King of Prussia Mall (KPM) and Center City Philadelphia (22.5 miles). The invested capital is $800,000, corresponding to the investment in the 4 luxury vans it owns (you can ignore all other invested capital). Each van can carry 10 passengers. Each van makes 12 daily trips from Philadelphia to KPM and 12 from KPM to Philadelphia. The company charges $10 for each one-way ride. The current load factor is 40% (that is, each ride has 4 passengers on average). A significant source of operating costs is the fuel cost. The company vans have a fuel economy of each of 20 mpg (miles/gallon). Current fuel prices are 2.629 $/gallon. The staff costs and other costs of operating the service and running the business are $1M per year. The company operates 365 days a year.

a) Draw an ROIC (return on invested capital) tree for the company.

b) What is the ROIC?

c) Assume that the company can increase the fuel efficiency of the vans to 25mpg. What would be the new ROIC?

What are the key assumptions and principles used in forecasting? What are the primary drivers of gaps between the financial forecast and actual results? How can financial forecasting benefit an organization?