Redemption based on her expectations of interest rates

Assignment Help Financial Management

Reference no: EM13953665

Show transcribed image text ABC Corporation has issued callable bonds that have 8% annual coupon rate paid semianmally. Bonds could be redeemed starting from the end of year 2. The call premium equals the amount of the annual coupon. The bonds mature in 8 years, have a face value of $1000 and a yield to maturity of 10%. The economy is expected to plunge into recession. What is the value of these bonds if the investor considers a possibility of earlier redemption based on her expectations of interest rates?

Reference no: EM13953665

Questions Cloud

What is the effective cost rate of the costly credit : A firm buys on terms of 2/10, net 30, but generally does not pay until 40 days after the invoice date. Its purchases totaled $1,095,000 per year. How much “non-free” trade credit does the firm use on average each year? What is the nominal cost of “no..

Beta of equity in the firm be after the leveraged buyout : Safecorp, which owns and operates grocery stores across the United States, currently has $50 million in debt and $100 million in equity outstanding. Its stock has a beta of 1.2. It is planning a leveraged buyout, where it will increase its debt/equit..

Redemption based on her expectations of interest rates : ABC Corporation has issued callable bonds that have 8% annual coupon rate paid semianmally. Bonds could be redeemed starting from the end of year 2. The call premium equals the amount of the annual coupon. The bonds mature in 8 years, have a face val..

Estimate the cost of equity for biogen : Biogen, a biotechnology firm, had a beta of 1.70 in 2014. It had no debt outstanding at the end of that year. Estimate the cost of equity for Biogen, if the Treasury bond rate is 6.4 percent. What effect will an increase in long-term bond rates to 7...

Redemption based on her expectations of interest rates : Show transcribed image text ABC Corporation has issued callable bonds that have 8% annual coupon rate paid semianmally. Bonds could be redeemed starting from the end of year 2. The call premium equals the amount of the annual coupon. What is the val..

Estimate the unlevered beta of the firm : Chrysler, the automotive manufacturer, had a beta of 1.05 in 1995. It had $13 billion in debt outstanding in that year and 355 million shares trading at $50 per share. The firm had a cash balance of $8 billion at the end of 1995. The marginal tax rat..

Weighted average cost of capital-after-tax cost of debt : Bane Industries has capital structure consisting of 62 percent common stock and 38 percent debt. The firm's investment banker has advised the firm that debt issued with $1,000 par value, 8.3 percent coupon (interest paid semiannually), and maturing i..

What is the net present value of acquiring : ABC and XYZ are all-equity firms. ABC has 1,750 shares outstanding at a market price of $20 a share. XYZ has 2,500 shares outstanding at a price of $28 a share. XYZ is acquiring ABC for $36,000 in cash. The incremental value of the acquisition is $3,..

What is after-tax cost of debt on the bond : (Cost of debt) Temple-Midland, Inc. is issuing a $1,000 par value bond that pays 8.6 percent annual interest and matures in 15 years. Investors are willing to pay $950 for the bond and Temple faces a tax rate of 31 percent. What is Temple's after-tax..

User Account

All Pages