Estimate of the nominal interest rate on new bonds

Assignment Help Financial Management
Reference no: EM131442445

Absalom Motors's 8% coupon rate, semiannual payment, $1,000 par value bonds that mature in 30 years are callable 6 years from now at a price of $1,025. The bonds sell at a price of $1,254.87, and the yield curve is flat. Assuming that interest rates in the economy are expected to remain at their current level, what is the best estimate of the nominal interest rate on new bonds? Round your answer to two decimal places.

Reference no: EM131442445

Questions Cloud

Corresponding type of challenge typically faced : Identify the correct pairing of the type of state and the corresponding type of challenge typically faced.
Difference between effective rate and stated rate : 1. Explain what calculating the time value of money does. 2. What is the difference between effective rate and stated rate? 3. Explain the relationship between inflation and the time value of money.
What are fords two major segments : What are Ford's 2 major segments? What are the major 3 components associated with Ford's profitability for cars and trucks? Comment briefly (one paragraph) on Ford's planning assumptions and key metrics share.
What is the unitary tax systems : In 1998, a major dispute broke out between California and the United Kingdom involving taxation of the income of Barclays Bank, one of the major British banks.
Estimate of the nominal interest rate on new bonds : Absalom Motors's 8% coupon rate, semiannual payment, $1,000 par value bonds that mature in 30 years are callable 6 years from now at a price of $1,025. The bonds sell at a price of $1,254.87, and the yield curve is flat. Assuming that interest rates ..
Give an example of an abnormal behavior and identify : Using your textbook and readings, give an example of an abnormal behavior and identify the school of thought associated with it.Use in-text citations in complete 6th edition APA format.
Yen call options with a strike price : A speculator is considering the purchase of five three-month Japanese yen call options with a strike price of 96 cents per 100 yen. The premium is 1.35 cents per 100 yen. The spot price is 95.28 cents per 100 yen and the 90-day forward rate is 95.71 ..
What is a substanceuse disorder : What are the pharmacological and physiological effects of substance use? Select two substances from the following and describe at least two pharmacological and physiological effect of each.What is a process addiction? What is a substanceuse disorde..
Define the statement wheather it is true or not : True or false: "Government borrowing can transfer resources from future generations to the present, but it cannot affect the overall wealth of the country." Discuss.

Reviews

Write a Review

Financial Management Questions & Answers

  The pro rata portion of shares each of the winning bidders

Your firm pitched the issue to several large private equity clients. Fourteen sealed bids were submitted, and you have sorted them by bid price. Also, calculate the pro rata portion of shares each of the winning bidders will receive for the number of..

  Modify the equipment for special use by the firm

You must evaluate a proposed spectrometer for the R&D department. The base price is $90,000, and it would cost another $18,000 to modify the equipment for special use by the firm. The equipment falls into the MACRS 3-year class and would be sold afte..

  Debt service reserve fund maintained by board of trustees

Huntley Hospital must maintain $3.3 million in a debt service reserve fund maintained by the board of trustees. The board members would like to count this balance when determining the amount of cash that they should carry for meeting normal transacti..

  Evaluating a project that would require initial investment

Fairfax Pizza is evaluating a project that would require an initial investment in equipment of 600,000 dollars and that is expected to last for 7 years. MACRS depreciation would be used where the depreciation rates in years 1, 2, 3, and 4 are 39 perc..

  Describe the four different financial reports-stakeholders

Describe the concept of lease versus buy and how you would determine the best choice? Describe the four different financial reports, the stakeholders, and how they use them.Remember to support your position

  Considering the purchase of an outstanding bond

It is now January 1, 2012, and you are considering the purchase of an outstanding bond that was issued on January 1, 2008. It has a 7 percent annual coupon and had a 30-year original maturity. what rate of return would you probably earn, assuming you..

  What interest payments do bondholders receive each year

Common Products has issued its $.0001 par value stock in two separate financing transactions. Transaction 1: five years ago, the founder of the company purchased 4,000,000 shares of stock for $100,000.  If it currently has a yield to maturity of 5.5%..

  Summary of the four elements of financial management

Include a summary of the four elements of financial management. Include a summary of generally accepted accounting principles and general financial ethical standards

  How much money has been reinvested in the firm

How much money has been reinvested in the firm over the years? -At the present time, how large a check could be written without it bouncing?

  Evaluate the proposed acquisition of new special

You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $230,000. The truck falls into the MACRS 5-year class, and it will be sold after 5 years for $23,000. The firm's marginal tax..

  Weighted average that implied by two outstanding debt issues

Erna Corp. has 8 million shares of common stock outstanding. The current share price is $73, and the book value per share is $7. Erna Corp. also has two bond issues outstanding. Assume that the overall cost of debt is the weighted average of that imp..

  What was the most recent dividend per share paid on stock

Jackson Street Repair’s stock currently sells for $55 per share. The market requires a 12% return on the firm’s stock. If the company maintains a constant 5% growth rate in dividends, what was the most recent dividend per share paid on the stock?

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