a) What is the price of a 10-year bond paying semi-annual coupons at the rate of 5% compounded semi- annually, if it is priced to yield 4.8% compounded semi-annually?

b) Is the bond trading at a premium or at a discount?

c) What would be the price quote for this bond?

d) What is the Macaulay duration of this bond in years, rounded to 2 decimal places? (Hint: create a table in excel)

e) What is the price of a 10-year zero coupon bond priced to yield 4.8% compounded semi-annually?

Mayfawny owns an 8 year bond with a par value of 1,000. The bond matures for par and pays semi-annual coupons at a rate of 6% convertible semi-annually.

Calculate the Modified duration of this bond at an annual effective interest rate of 9.2025%.

Consider a 10-year bond with a face value of $100 that pays an annual coupon of 8%. Assume spot rates are flat at 5%.

a.Find the bond’s price and modified duration.

b.Suppose that its yields increase by 10bps. Calculate the change in the bond’s price using your bond pricing formula and then using the duration approximation. How big is the difference?

c.Suppose now that its yields increase by 200bps. Repeat your calculations for part b.

What is the YTM of a 10 year, 8% semi-annual coupon bond with a price of $1220?

Question 3 The stockholders’ equity section of Wildhorse Inc. at the beginning of the current year appears below.

Common stock, $10 par value, authorized 1,095,000 shares, 293,000 shares issued and outstanding $2,930,000

Paid-in capital in excess of par—common stock 604,000

Retained earnings 537,000 During the current year, the following transactions occurred.

1. The company issued to the stockholders 103,000 rights. Ten rights are needed to buy one share of stock at $33. The rights were void after 30 days. The market price of the stock at this time was $35 per share.

2. The company sold to the public a $213,000, 10% bond issue at 103. The company also issued with each $100 bond one detachable stock purchase warrant, which provided for the purchase of common stock at $31 per share. Shortly after issuance, similar bonds without warrants were selling at 96 and the warrants at $7.

3. All but 5,150 of the rights issued in (1) were exercised in 30 days.

4. At the end of the year, 80% of the warrants in (2) had been exercised, and the remaining were outstanding and in good standing.

5. During the current year, the company granted stock options for 9,000 shares of common stock to company executives. The company, using a fair value option-pricing model, determines that each option is worth $10. The option price is $31. The options were to expire at year-end and were considered compensation for the current year.

6. All but 900 shares related to the stock-option plan were exercised by year-end. The expiration resulted because one of the executives failed to fulfill an obligation related to the employment contract.

Prepare general journal entries for the current year to record the transactions listed above. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round intermediate calculations to 5 decimal places, e.g. 1.24687 and final answers to 0 decimal places, e.g. 5,125.)

Prepare the stockholders’ equity section of the balance sheet at the end of the current year. Assume that retained earnings at the end of the current year is $790,000.

Jeremy received a 25 year loan of $370,000 to purchase a house. The interest rate on the loan was 4.00% compounded monthly.

a. What is the size of the monthly loan payment?

b. What is the principal balance of the loan at the end of 4 years?

c. By how much will the amortization period shorten if Jeremy made an extra payment of $54,000 at the end of the year 4? in years and moths

JRM Co. is in the process of closing its books for the year ended December 31, year 2.

The following business events are not properly reflected in JRM’s December 31, year 2, unadjusted trial balance:
  

The controller determined that half of the recorded rent expense is attributed to year 3.

JRM depreciates its property, plant and equipment using the straight-line method over 10 years. The property, plant and equipment had an original cost of $20,000 and a salvage value of $5,000.

JRM uses the percentage-of-sales method to determine the addition to bad debt expense. Uncollectible accounts receivable for year 2 was estimated to be 0.25%.

On December 31, year 2, a customer declared bankruptcy and its account receivable of $855 is uncollectible.

Life insurance premium for the period ended December 31, year 2, of $650 for key members of management are included in prepaid expense.

Interest of $300 was earned and outstanding on notes receivable during year 2. The note receivable is due at the end of year 5.

Income taxes for year 2 are estimated to be $3,000.

Based on the business events above, calculate the adjustments necessary to JRM’s unadjusted trial balance by entering the appropriate debit and credit amounts in columns D and E, respectively. Enter debit adjustments as positive values and credit adjustments as negative values. If there is no adjustment needed, enter zero as the adjustment.
  
The amounts in column F will automatically calculate.
  

Consider a project with free cash flow in one year of $146,076 or $198,619​, with either outcome being equally likely. The initial investment required for the project is $75,000​, and the​ project's cost of capital is 21%. The​ risk-free interest rate is 6%. (Assume no taxes or distress​ costs.)

a. What is the NPV of this​ project?

b. Suppose that to raise the funds for the initial​ investment, the project is sold to investors as an​ all-equity firm. The equity holders will receive the cash flows of the project in one year. How much money can be raised in this way-that ​is, what is the initial market value of the unlevered​ equity?  

c. Suppose the initial $75,000 is instead raised by borrowing at the​ risk-free interest rate. What are the cash flows of the levered​ equity, and what is its initial value according to​ M&M?

a. What is the NPV of this​ project?

The NPV is ​$______ (Round to the nearest​ dollar.)

b. Suppose that to raise the funds for the initial​ investment, the project is sold to investors as an​ all-equity firm. The equity holders will receive the cash flows of the project in one year. How much money can be raised in this way-that ​is, what is the initial market value of the unlevered​ equity?  

The initial market value of the unlevered equity is ​$_____ (Round to the nearest​ dollar.)

C) Suppose the initial $75,000 is instead raised by borrowing at the​ risk-free interest rate. What are the cash flows of the levered​ equity, and what is its initial value according to​ M&M?

The cash flows of the levered equity and the initial market value of the levered equity according to​ M&M is:​(Round to the nearest​ dollar.)

                          Date 0                                                                           Date 1

                Initial Value                   Cash Flow Strong Economy                   Cash Flow Weak Economy

Debt           $75,000

Levered Equity

The following table contains data for the U.S. balance of payments in a prior year. Answer the question on the basis of this information. All figures are in billions of dollars. U.S. goods exports +$793 U.S. goods imports -1573 U.S. exports of service +280 U.S. imports of services -222 Net investment income +5 Net transfers -81 Capital account -5 Foreign purchases of assets in the U.S. +1198 U.S. purchases of foreign assets -395 Refer to the table above. The data indicate that Americans:

a)Earned more from their investments abroad than foreigners earned from their investments in America

b)Sold more products to buyers abroad than what foreign producers sold to buyers in America

c)Bought foreign assets abroad more than foreigners bought assets in the U.S.

d)Invested abroad more than foreigners invested in America