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Consider a bond that pays coupon interest of $45 at the end of each six month period and that has a face value of $1000. The bond will mature twenty years from today. The appropriate discount rate, based on today’s capital market opportunities, is a simple rate of 7% per year, with semiannual compounding. (a) What is today’s market value of this bond? (b) Explain intuitively why the bond’s current market value differs from its $1000 face value. (c) Suppose that this bond paid coupon interest in the amount of $90 at the end of each year instead of $45 at the end of each six month period. (Note, the Excel spreadsheet will no longer give the correct answer without modification, since it assumes semiannual payments). Effective market interest rates are the same as in part (a) — we are changing the characteristics of this bond, not rates that are available on alternative investments. Recompute the value of the bond, and explain intuitively why the answer differs from that obtained in part (a). Hint: today’s value of the future payment of the bond’s face value should be the same as in part (a), because nothing about this payment has changed.
Companies want to make the best marketing decisions possible regarding which customers to pursue, which products or services to introduce or promote, where to sell their products or services, and at what price. Although not perfect, the use of market..
A risk-free bond which matures in 1 year has a face value of $200, the real interest rate is 5% and the expected inflation rate is 2%. What will the price of this bond be today? A risk-free bond which matures in 1 year has a price today of $350 and t..
An investment will pay $100 at the end of each of the next 3 years, $250 at the end of Year 4, $350 at the end of Year 5,
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Pearson Motors has a target capital structure of 40% debt and 60% common equity, with no preferred stock. What is Pearson's cost of common equity?
Describe what will happen to the market price once these orders are submitted if in fact the takeover will occur in a few hours.
Listed below are five bank regulations followed by five different descriptions of regulations.
You purchased six TJH call option contracts with a strike price of $40 when the option premium was quoted at $1.30. The option expires today when the value of TJ stock is $41.90. Ignoring trading costs and taxes, what is your total profit or loss on ..
Kingdom experiences an inflation rate of 7 percent while the United States experiences an inflation rate of 2 percent?
Accrual income vs. cash flow for a period Thomas Book Sales, Inc., supplies textbooks to college and university bookstores. The books are shipped with a proviso tht they must be paid for within 30 days but can be returned for a full refund credit wit..
Suppose there is an increase in the demand for apartment units. Which market will be affected first?
The loan will be for $2,100,000 financed at a 8% nominal annual interest rate. How much will the monthly payments be?
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