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Harold Reese must choose between two bonds: Bond X pays $95 annual interest and has a market value of $905. It has 13 years to maturity. Bond Z pays $85 annual interest and has a market value of $910. It has five years to maturity. Assume the par value of the bonds is $1,000. a. Compute the current yield on both bonds. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Current Yield Bond X % Bond Z % b. Which bond should he select based on your answers to part a? Bond X Bond Z c. A drawback of current yield is that it does not consider the total life of the bond. For example, the approximate yield to maturity on Bond X is 10.85 percent. What is the approximate yield to maturity on Bond Z? The exact yield to maturity? (Use the approximation formula to compute the approximate yield to maturity and use the calculator method to compute the exact yield to maturity. Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Approximate yield to maturity % Exact yield to maturity % d. Has your answer changed between parts b and c of this question? Yes No
Carl Patterson likes investing in stocks that pay dividends. Carl owns 115 shares of a local utility company. The stock pays a regular annual dividend in the amount of $5.25 per share and the company has indicated that the dividend will stay the same..
Using a 5% discount rate, calculate the Net Present Value, Payback, Profitability Index, and IRR for each of the investment projects below (note, the inflows are for each year). Assuming a budget of $2,000,000 what are your recommendations for the ab..
As stockholders, we can not rely on the managers of our firm to always appropriately manage the company for us. Which of the following is not a mechanism for helping ensure that the managers of our firm more appropriately manage the company for us. e..
In 1970, Wal-Mart offered 300,000 shares of common stock to the public at a price of $16.50 per share. The stock is now worth $10,887,600.00 (2010). What is the rate of return over the 40 year period?
IBM has a bond issue outstanding with 14 years to maturity. When originally issued the bond had a par value of $1,000, a stated coupon rate of 12% and 15 years to maturity. Currently, similar risk bonds in the market place are yielding 8%. What would..
Mary Chong, capital expenditure manager for PDA Manufacturing, knows that her company is facing a series of monthly expenses associated with installation and calibration of new production equipment. The company has $1 million in a bank account right ..
You figure that the total cost of college will be $100,000 per year 18 years from today. If your discount rate is 8% compounded annually, what is the present value today of four (4) years of college costs starting 18 years from today?
For the scenario provided, calculate the two costs of two different strategies: The Sherman-Brown Chemical Company is in the process of developing an aggregate capacity plan for next year. Two alternative plans are being considered, level capacity wi..
A pottery factory purchases a continuous belt conveyor kiln for $68,000. A 6.3% APR loan with monthly payments is taken out to purchase the kiln. If the monthly payments are $765.22, over what term is this loan being paid?
High electricity costs have made Farmer Corporation’s chicken-plucking machine economically worthless. Only two machines are available to replace it. The International Plucking Machine (IPM) model is available only on a lease basis. What is the NAL ..
You sell short 300 shares of Microsoft which are currently selling at $30 per share. You post the 50% margin required on the short sale. The broker requires a 30% maintenance margin.
A firm is considering the purchase of an asset whose risk is greater than the current risk of the firm, based on any method for assessing risk. In evaluating this asset, the decision maker should. Increase the IRR of the asset to reflect the greater ..
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