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Illinois Industries has decided to borrow money by issuing perpetual bonds with a coupon rate of 9.5 percent, payable annually. The one-year interest rate is 9.5 percent. Next year, there is a 35 percent probability that interest rates will increase to 12 percent, and there is a 65 percent probability that they will fall to 7 percent.
a. What will the market value of these bonds be if they are noncallable?
You just purchased a corporate bond that matures in 5 years, has an 8% coupon, and has a current yield of 8.21%. What is the bond's yield to maturity? A corporate bond that matures in 7 years sells today for $1,020 and has a yield to maturity of 10.5..
Which of the following statements about internal rate of return is true?
The project will use the straight-line depreciation method. The project has no salvage value. It is estimated that the project will generate additional revenues of $1.2 million per year before tax and has additional annual costs of $600,000. The ..
Rise Against Corporation is comparing two different capital structures: an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the company would have 205,000 shares of stock outstanding. Under Plan II, there would be 155,000 shares o..
Your job pays you only once a year for all the work you did over the previous 12 months. Today, December 31, you just received your salary of $69,000 and you plan to spend all of it. However, you want to start saving for retirement beginning next yea..
You are purchasing a house for $95,000. The lender requires a 10% down payment, and will finance the rest with a 30 year fixed rate mortgage with monthly payments at 9 7/8% (interest rate is 9.875) with two discount points charged. Calculate the bal..
The effective annual discount rate is 5% (r = .05) at all maturities. What is the present value of a stream of payments that starts at $100 at t = 1 (time in years) and grows at 3 percent for 5 years (to t = 6), then growing at 10 percent for 10 year..
You just won the 800 million dollar lottery. You have the option of taking 500 million as one lump sum or 25.8 million TODAY (year 0) then 25.8 million for the next 30 years. We need to pay taxes. Assume the tax rate is 40 percent for all payments. H..
Calculate the future value of $5,000 earning 10% after one year assuming annual compounding. Richard Gorman is 65 years old and about to retire. He has $500,000 saved to supplement his pension and Social Security, and would like to withdraw it in equ..
INTERMEDIATE 9. Gulf Controls, Inc., has a net profit margin of 10 percent and earnings after taxes of $600,000. Its current balance sheet follows: Compare Gulf Controls with the average firm in the industry. What is the source of the major differenc..
CMG is currently trading at $610 per share. You buy a put option on CMG computers at a strike price of $600 with March maturity. You pay a put premium of $34 per share for this option. Determine your profit or loss if. Determine the breakeven point
Explain how a bond can be classified as a fixed-income security when the yield to maturity can fluctuate significantly over time, depending on the market price of the bond.
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