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Kholdy Inc's bonds currently sell for $X per bond. The bond’s annual coupon payments are based on the coupon rate of 12%, and it has maturity of 20 years. Its call protection period is 5 years. You are also given that the bond’s yield to maturity (YTM) is 12% and yield to call (YTC) is 12.50%. What is the call premium amount? Assume that the face value of the bond is $1,000.
Consider an 8 to 30-year government bond with a yield to maturity of 12 percent. Compute its duration (Macaulay and modified). Calculate the actual and approximate percentage change in the bond’s price if interest rates on comparable securities in th..
Honda Motor Co. prices its whole line (from the $15,000 Honda Fit economy sedan to the $40,000 Pilot SUV) so that it offers high quality at reasonable prices. What pricing policy is Honda using?
Water and Power Co. (W&P) currently has $540,000 in total assets and sales of $1,820,000. Half of W&P’s total assets come from net fixed assets, and the rest are current assets. The firm expects sales to grow by 21% in the next year. According to the..
Risk-Averters Inc. invest 2/3 of its funds in General Mills Stock and the remainder in Budweiser Beer. On past evidence, the standard deviation of the returns are 20% for General Mills and 40% for Budweiser Beer. Suppose the correlation coefficient b..
A brilliant young scientist is killed in a plane crash. It was anticipated that he could have earned $330,000 a year for the next 50 years. The attorney for the plaintiff’s estate argues that the lost income should be discounted back to the present a..
Clyde’s Smoke Shop has cash of $750, accounts receivable of $150, inventory of $300, and accounts payable of $600. What is the value of Clyde’s quick ratio?
Suppose the call money rate is 6.8 percent, and you pay a spread of 1.9 percent over that. You buy 1,000 shares at $91 per share with an initial margin of 40 percent. One year later, the stock is selling for $99 per share, and you close out your posi..
The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $1,060,000, and it would cost another $24,500 to install it. The machine falls into the MACRS 3-year class, and it would be sold af..
An investor is more likely to prefer a high dividend payout if a firm:
Taussig Corp.'s bonds currently sell for $1,150. They have a 6.35% annual coupon rate and a 20-year maturity, but they can be called in 5 years at $1,067.50. Assume that no costs other than the call premium would be incurred to call and refund the bo..
Suppose your company needs to raise $52 million and you want to issue 25-year bonds for this purpose. Assume the required return on your bond issue will be 7 percent, and you’re evaluating two issue alternatives: A semiannual coupon bond with a coupo..
Billy’s Exterminators, Inc., has sales of $658,000, costs of $310,000, depreciation expense of $62,000, interest expense of $41,000, a tax rate of 35 percent, and paid out $64,800 in cash dividends. The firm has 120,000 shares of common stock outstan..
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