What would you be willing to pay for the same bond

Assignment Help Financial Management
Reference no: EM131328812

You are a new analyst at Marshall Capital, and you are looking to purchase General Motors bonds for an investment. The bonds are currently selling for $1253 and have a yield to maturity of 8%. The bond will mature in 10 years and makes semiannual coupon payments.

In a year, suppose that investors gain confidence in the market and believe that it has come less risky. This results in a shift in the market rate from 8% to 6%.

a) What would you be willing to pay for the same bond?

b) Is the bond selling at a discount of premium?

Reference no: EM131328812

Questions Cloud

Calculate the accounting rate of return from each asset : Calculate the accounting rate of return from each asset, assess its acceptability, and indicate which asset is best, using the accounting rate of return.
What is the firm debt ratio : Dearborn Supplies has total sales of $ 200 million, assets of $ 91million, a return on equity of 34 percent, and a net profit margin of 7.6 percent. What is the firm's debt ratio? The company's debt ratio is %.
Discuss the factors that helped you make the decision : Discuss the factors that helped you make the decision to purchase the product from the retailer. What are the top three factors that are most important to you in this purchase decision
Information on certain persons owning corporations stock : Peterson Golf Corporation is organized as a C-Corporation and was incorporated May 14, 2009. Information on Certain Persons Owning the Corporation's Voting Stock
What would you be willing to pay for the same bond : You are a new analyst at Marshall Capital, and you are looking to purchase General Motors bonds for an investment. The bonds are currently selling for $1253 and have a yield to maturity of 8%. The bond will mature in 10 years and makes semiannual cou..
What is your incremental cash flow from selling the machine : You purchased a machine for $1.07 million three years ago and have been applying straight-line depreciation to zero for a seven-year life. Your tax rate is 35%. If you sell the machine today? (after three years of depreciation) for $797,000?, what is..
What is a predecessor and successor : Why is it good practice to assign start and end dates sparingly in the early stages of project planning?
Include electricity costs in your incremental cash flows : You are helping to decide whether or not to start a new project. The project would be housed in a building that is currently 70% full. Your project would use the other 30% of the building. This year, the annual electricity cost for the building is $8..
What is your incremental cash flow from selling machine : You purchased a machine for $1.15 million three years ago and have been applying? straight-line depreciation to zero for a? seven-year life. Your tax rate is 38%. If you sell the machine today? (after three years of? depreciation) for $712,000?, what..

Reviews

Write a Review

 

Financial Management Questions & Answers

  The firm in terms of cash flow from operating activities

Describe the overall cash flow through the firm in terms of cash flow from operating activities, cash flow from investment activities, and cash flow from financing activities. Describe the general format of the statement of cash flows. How are cash i..

  The balanced scorecard and organizational effectiveness

Select an organization to study for this exercise. It should be an organization for which one of you has worked, or it could be part of the university.

  What is the probability that this stock

A stock had returns of 8%, 14%, and 2% for the past three years. Based on these returns, what is the probability that this stock will earn at least 20% in any one given year? 0.5% 1.0% 2.5% 5.0% 16.0%

  Calculate payback period and net present value

Bravo company is considering a plan to construct a new manufacturing plant to expand its operations. An attractive piece of land is available which could be purchased immediatley for $100,000. Bravo would build a plant on the land at a cost of $200,0..

  What is the present value of your firms cash flows for years

Your consulting firm will produce cash flows of $130,000 this year, and you expect cash flow to keep pace with any increase in the general level of prices. The interest rate currently is 6.6%, and you anticipate inflation of about 2.6%. What is the p..

  Semiannual coupon bond matures-what is the bonds price

An 6% semiannual coupon bond matures in 6 years. The bond has a face value of $1,000 and a current yield of 7.0588%. What is the bond's price? What is the bond's YTM?

  Is change in demand proportional to change in real income

If real income increases 20 percent, what happens to the demand for real money balances? - Is the change in demand proportional to the change in real income?

  Bond makes annual coupon payments

Company just issued a 10 year 7% coupon bond. The face value of the bond is $1,000 and the bond makes annual coupon payments. If the required return on the bond is 10%, what is the bond’s price?

  Study compared the weight loss of people on low-fat diet

A study compared the weight loss of people on a low -fat diet versus people on a low-carb diet. In a sample of 100 obese people on a low-fat diet the sample mean weight loss as 7.6 pounds with a standard deviation of 3.2 pounds.

  Relationship between the price of a bond and interest rates

Discuss the relationship between the price of a bond and interest rates. Why does the price of a bond change over its lifetime? Please offer a quantitative example to demonstrate this relationship.

  What is value of bond that matures

What is the value of a bond that matures in 17 years makes an annual coupon payment of $50 and has a par value of $1,000. Assume a required rate of return of 6%

  What is the overall cost of capital for the firm

You are analyzing the cost of capital for a firm that is financed with 65 percent equity and 35 percent debt. The after-tax cost of debt capital is 8 percent, while the cost of equity capital is 20 percent for the firm. What is the overall cost of ca..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd