Compute the fair price of the perpetual bond

Assignment Help Financial Management

Reference no: EM13953720

Compute the fair price of the following perpetual bond. Its first interest, $120, will be paid 15 years from now and will be adjusted upward by 3% every year to compensate for the risk of inflation. Investors require 8% return on the bond.

Reference no: EM13953720

Questions Cloud

Challenges of cost-effectiveness ratio rankings : What are some of the challenges of cost-effectiveness ratio rankings? What are some of the benefits of using a risk-adjusted measure for comparing cost-effectiveness?

What are the appropriate expected rates of return : The expected return for the general market is 13 percent and the risk premium is 7.9 percent. Tasaco, LBM, and Exxos have betas of 0.845, 0.602, and 0.591 respectively. what are the appropriate expected rates of return for the three securities?

What will be the increase in total market value for the firm : Operating income (EBIT) $600 million, Debt $0, Interest expense $0, Tax rate 35%, Cost of equity 7%, WACC 7%. The company has no growth opportunities (g = 0), so the company pays out all of its earnings as dividends. If the company makes this change,..

What is your annual rate of return for the three year period : Three years ago, you bought a 12% bond that had 7 years to maturity and a yield to maturity of 12%. Today (after the sixth interest payment), you sold the bond when it is yielding 15%. What is your annual rate of return for the three year period? All..

Compute the fair price of the perpetual bond : Compute the fair price of the following perpetual bond. Its first interest, $120, will be paid 15 years from now and will be adjusted upward by 3% every year to compensate for the risk of inflation. Investors require 8% return on the bond.

What is the maximum price of a house they can afford to buy : Jane and Tom are searching for their first house. They have saved $45,000 for down-payment. Their mortgage company, offering a 30-year 7.2% loan, suggests that they spend up to $1,750 for monthly mortgage payment. What is the maximum price of a house..

Debt-equity ratio of stock price and beta : The Black Knight has a debt-equity ratio of .6, a beta of 1.12, a stock price of $42 a share and a tax rate of 34 percent. The firm just paid an annual dividend of $.80 a share and plans to increase that amount by 3 percent annually in the future. Th..

Industry herfindahl-hirschmann index : Which of the following is true of an industry’s Herfindahl-Hirschmann Index (HHI)?

What is annualized cost of forgoing the discount : If a firm buys on trade credit terms of 3/10, net 50 and decides to forgo the trade credit discount and pay on the net day, what is annualized cost of forgoing the discount (assume a 360-day year)? The annualized cost of the trade credit terms of 3/1..

User Account

All Pages