Calculate the price as present value of future cash flows

Assignment Help Financial Management
Reference no: EM13809813

HINT: The trick here is just to calculate the price as the present value of future cash flows, just like in Chapter 6. Notice that the coupon payments) don't start immediately for one bond. You must adjust the present value equation for an annuity to reflect that the payments do not start at the end of one compounding period.

The McKeegan Corporation has two different bonds currently outstanding. Bond M has a face value of $10,000 and matures in 22 years. The bond makes no payments for the first 7 years, then pays $600 every six months over the subsequent 8 years, and finally pays $700 every six months over the last 7 years. Bond N also has a face value of $10,000 and a maturity of 22 years; it makes no coupon payments over the life of the bond. If the required return on both these bonds is 12 percent compounded semi annually, the current price of Bonds M and N is $ and $ , respectively.

Reference no: EM13809813

Questions Cloud

Task is to analyze two mutually exclusive projects : Your task is to analyze two mutually exclusive projects: Using the payback criterion, which investment should you chose? Why? Using the discounted payback criterion, which investment should you chose? Why? Using the NPV criterion, which investment sh..
Describe operation of a device which uses hydraulic pressure : Calculate 01 the force ratio and movement ratio of each jack 00 the pressure within the hydraulic fluid - Describe the operation of a device which uses hydraulic pressure.
Examples of applying supply chain management : You and your fellow operations department teammates have been debating which companies are the best examples of applying supply chain management.
Presentation on operations management : The warehouse manager thought your presentation on operations management was extremely valuable to the company. He now wants to shift the conversation to focus on his warehouse department.
Calculate the price as present value of future cash flows : The trick here is just to calculate the price as the present value of future cash flows, just like in Chapter 6. Notice that the coupon payments) don't start immediately for one bond. You must adjust the present value equation for an annuity to refle..
Assortment of oxygen and acetylene cylinders : A welder has constructed a manifold arrangement for an assortment of oxygen and acetylene cylinders stored together lying on the floor. The manifold pressurizes the gaseous acetylene and depressurizes the oxygen to 50-psig for both.
What is a value chain : What is a value chain? Distinguish between primary and secondary components and provide some examples
Systematic versus unsystematic risk : Systematic versus Unsystematic Risk (LO2, CFA4) Consider the following information on Stocks I and II:
Electric plug for the drill : A worker was electrocuted when he drilled through a wall and the drill bit contacted an electrical wire inside the wall by cutting through its insulation. The ground pin of the electric plug for the drill was broken off.

Reviews

Write a Review

Financial Management Questions & Answers

  What is the amount of the operating cash flow

United Enterprises paid $12,000 in dividends and $21,300 in interest over the past year. Sales totalled $139,700 with costs of $101,400. The depreciation expense was $10,500. The applicable tax rate is 34 percent. What is the amount of the operating ..

  What will your annual loan payment be

Dinero Bank offers you a $60,000, five-year term loan at 7.5 percent annual interest. What will your annual loan payment be? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

  What is dengs wacc

Deng Inc. has a target debt-equity ratio of 0.4. It's before-tax  cost of equity is 16 %  and it's before-tax cost of debt is 8%. If the tax rate is 32%, what is Deng's WACC?

  Anthonys orchard case study media

What-if analyses are valuable aids in assessing a variety of planned and unplanned events. You will utilise the analysis you conduct here as part of the Final Project.

  Explain what is the firm''s cost of common equity

the dividends are growing at 5%, flotation costs are $2 per share and the firm will net $72 per share upon the sale of the stock. What is the firm's cost of common equity?

  Rise for the option strategy to be more profitable

The current price of a stock is $94, and three-month European call options with a strike price of $95 currently sell for $4.70. An investor who feels that the price of the stock will increase is trying to decide between buying 100 shares and buying 2..

  Explain the meaning of surplus units and deficit units

Surplus and Deficit Units Explain the meaning of surplus units and deficit units. Provide an example of each. Which types of financial institutions do you deal with? Explain whether you are acting as a surplus unit or a deficit unit in your relations..

  Note receivable-journal entries

Note receivable--journal entries-On September 1, 2015, Essex Transfer Corp sold equipment priced at $350,000 in exchange for a six-month note receivable with an annual interest rate of 12%, all due at maturity.

  Determine target weighted average cost of capital

Felicia & Fred’s executive board have asked you to complete a decision model for their intended refurbishment of the former mill building. In order to make an appropriate decision, the executive team has provided you with the following information re..

  What must be the uniform annual sales volume of the product

Nadine Chelesvig has patented her invention. She is offering a patent manufacturer two contracts for the exclusive right to manufacture and market her product. Plan A calls for an immediate single lump payment to her of $35,000.

  What is the stock price for each company

Red, Inc., Yellow Corp., and Blue Company each will pay a dividend of $3.30 next year. The growth rate in dividends for all three companies is 5 percent. The required return for each company’s stock is 7 percent, 10 percent, and 13 percent, respectiv..

  Assume bond is annual

Can you show me what the formula looks like? Calculate the price of a $1,000 par value bond that is outstanding at 8% interest. The bond will mature in 25 years and the current yield is 10%. ASSUME THIS BOND IS ANNUAL.

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