Question

In: Accounting

You have been given the opportunity to purchase a $100 Transocean, Inc. corporate bond for $96.24....

You have been given the opportunity to purchase a $100 Transocean, Inc. corporate bond for $96.24. The bond was issued on 10/1/2001 and matures on 10/1/2031. It has a coupon rate of 7.5% per year and coupons are paid twice a year. If your MARR for bonds of this grade (Moody’s rating = Caa1) is 8.8% per year (nominal) should you purchase the bond today at this price?. You must draw a correct cash flow diagram to get full credit for this problem.

Solutions

Expert Solution

Interest @3.75% for 6 Month 1.044
Half Year Cash Flow PVF @ 4.4% (For 6Month) Present Value
0 -96.24 1 -96.24
1 3.75 0.957854406 3.591954
2 3.75 0.917485063 3.440569
3 3.75 0.87881711 3.295564
4 3.75 0.841778841 3.156671
5 3.75 0.806301572 3.023631
6 3.75 0.772319514 2.896198
7 3.75 0.739769649 2.774136
8 3.75 0.708591618 2.657219
9 3.75 0.678727603 2.545229
10 3.75 0.650122225 2.437958
11 3.75 0.622722438 2.335209
12 3.75 0.596477431 2.23679
13 3.75 0.571338536 2.14252
14 3.75 0.547259134 2.052222
15 3.75 0.524194573 1.96573
16 3.75 0.502102081 1.882883
17 3.75 0.480940691 1.803528
18 3.75 0.46067116 1.727517
19 3.75 0.4412559 1.65471
20 3.75 0.422658908 1.584971
21 3.75 0.404845697 1.518171
22 3.75 0.387783235 1.454187
23 3.75 0.37143988 1.3929
24 3.75 0.355785326 1.334195
25 3.75 0.340790542 1.277965
26 3.75 0.326427722 1.224104
27 3.75 0.312670232 1.172513
28 3.75 0.299492559 1.123097
29 3.75 0.286870268 1.075764
30 3.75 0.27477995 1.030425
31 3.75 0.263199186 0.986997
32 3.75 0.2521065 0.945399
33 3.75 0.241481322 0.905555
34 3.75 0.231303948 0.86739
35 3.75 0.221555506 0.830833
36 3.75 0.212217917 0.795817
37 3.75 0.203273867 0.762277
38 3.75 0.194706769 0.73015
39 3.75 0.186500737 0.699378
40 3.75 0.178640553 0.669902
41 3.75 0.17111164 0.641669
42 3.75 0.163900039 0.614625
43 3.75 0.156992374 0.588721
44 3.75 0.150375837 0.563909
45 3.75 0.144038158 0.540143
46 3.75 0.137967585 0.517378
47 3.75 0.132152859 0.495573
48 3.75 0.126583198 0.474687
49 3.75 0.121248274 0.454681
50 3.75 0.116138194 0.435518
51 3.75 0.11124348 0.417163
52 3.75 0.106555058 0.399581
53 3.75 0.102064232 0.382741
54 3.75 0.097762674 0.36661
55 3.75 0.093642408 0.351159
56 3.75 0.089695793 0.336359
57 3.75 0.085915511 0.322183
58 3.75 0.08229455 0.308605
59 3.75 0.078826198 0.295598
60 103.75 0.075504021 7.833542
228.76 Net Present Value -9.89733

Present value of Investment negative i.e $ -9.89 , therefore Bonds investment is not vible option.

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

You have been given the opportunity to purchase a $100 Transocean, Inc. corporate bond for $96.24....
You have been given the opportunity to purchase a $100 Transocean, Inc. corporate bond for $96.24. The bond was issued on 10/1/2001 and matures on 10/1/2031. It has a coupon rate of 7.5% per year and coupons are paid twice a year. If your MARR for bonds of this grade (Moody’s rating = Caa1) is 8.8% per year (nominal) should you purchase the bond today? You must draw a correct cash flow diagram to get full credit for this problem.
You have recently been given an opportunity to lock-in a 1% monthly interest rate on a...
You have recently been given an opportunity to lock-in a 1% monthly interest rate on a savings account. Which of the following options will yield you the highest amount of interest on your 1% interest payments after 12 months? A) Accumulate 1% a month as an annual percentage rate B) Accumulate 1% a month as an annual percentage appreciation C) Accumulate 1% a month as an annual percentage yield D) Accumulate 1% a month as an annual percentage growth
You have been given the task to evaluate a market opportunity for a firm. Give specific...
You have been given the task to evaluate a market opportunity for a firm. Give specific examples of the dimensions you would use to determine the attractiveness of a given market. (Strategic Marketing)
You are an intern for the corporate finance office of SCF, Inc. and have been tasked...
You are an intern for the corporate finance office of SCF, Inc. and have been tasked to evaluate the following potential investment projects: Project A: Initial cash outflow of $96 million followed by cash inflows of $23 million per year for the next 10 years. Project B: Initial cash outflow of $22 million followed by cash inflows for the next 10 years, starting at $5 million next year and growing at an annual rate of 3%. Project C: Initial cash...
As a corporate manager, you have been given an investment budget of $24 million. You must...
As a corporate manager, you have been given an investment budget of $24 million. You must choose from among the following three independent projects: Project Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 A -$12 $10 $10 $14 B -$12 $8 $8 $8 $8 $2 C -$12 $6 $6 $6 $6 $6 (All dollar amounts are in millions.) The appropriate hurdle rate for all three projects is 12% per year. Given your investment budget of $24...
You are given a bond with a par value of 100 USD. This bond will take...
You are given a bond with a par value of 100 USD. This bond will take twenty years for it to mature. Each year the coupon for this bond is at ten percent. Each year the interest is at five percent. What is the modified duration if the coupon is made twice a year?
Your client has been offered the opportunity to purchase a property investment.  Given the following assumptions: Holding...
Your client has been offered the opportunity to purchase a property investment.  Given the following assumptions: Holding period 5 years Cost $50,000,000 Rental income $4,000,000(receivable annually in arrears and linked to inflation) Inflation forecast 3% Exit yield forecast 6% Target rate of return 10% Transaction costs 3% i. Advise your client of the Net Present Value of the investment opportunity. ii. Annotate your calculations with an appropriate commentary.
You have been given the task of calculating the WACC of ABC Inc. You will use...
You have been given the task of calculating the WACC of ABC Inc. You will use the following information to calculate the WACC. The firm has 3000 coupon paying bonds outstanding. Each coupon-paying bond has a face value of $1000, will mature 10 years from today, and is currently priced at 130% of the face value. The annual coupon rate is 12%, and coupon is paid on an annual basis. The company has 500,000 common shares outstanding, and each share...
You have been given the task of calculating the WACC of ABC Inc. You will use...
You have been given the task of calculating the WACC of ABC Inc. You will use the following information to calculate the WACC. The firm has 3000 coupon paying bonds outstanding. Each coupon-paying bond has a face value of $1000, will mature 10 years from today, and is currently priced at 130% of the face value. The annual coupon rate is 12%, and coupon is paid on an annual basis. The company has 500,000 common shares outstanding, and each share...
Suppose you are an investor in bonds. Consider a corporate bond with a $100 par value,...
Suppose you are an investor in bonds. Consider a corporate bond with a $100 par value, a 5% coupon paid semi-annual coupon, and five years to maturity. The bond presently yields 3% annually. Suppose that interest rates rise shortly, and the yield on comparable bonds is now 4%. After observing this change, you call your broker Jane for a quote on the bond. Jane shows that the bond price is $105. You quickly realize that there is an arbitrage opportunity...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT