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Valuing Bonds
Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 25 years to maturity, and a coupon rate of 6.7 percent paid annually.
If the yield to maturity is 7.8 percent, what is the current price of the bond?
The payoff of an interest rate LIBOR floor (the opposite of a cap) is of the form max[K - Last period LIBOR rate), 0]. That is, if rates go below K, the option writer will pay the difference, nothing otherwise.
An investment has the following cash flows and a required return of 14 percent. Based on IRR, should this project be accepted? Why or why not? Year 0: -$42,000 Year 1: $15,300 Year 2: $28,400 Year 3: $7,500
Mortgage lenders base the mortgage interest rate they offer you on your credit rating. This makes it financially critical to maintain a credit score of 700 or higher. How much more interest would you pay on a $184,000 home if you put 20% down and fin..
Blue Demon Bank expects that the Mexican peso will appreciate against the dollar from its spot rate of $.14 to $.15 in 10 days. The following interbank lending and borrowing rates exist: How could Blue Demon Bank attempt to capitalize on its expectat..
What is the margin of safety, assuming sales total $60,000? What is the breakeven level in pillows, assuming variable costs increase by 20%?
Describe how Bach could use a long strangle to hedge its possible dirham positions. What is the tradeoff involved in using a long strangle versus a long straddle to hedge the positions?
Soviet Motors Co. just paid a dividend of 2.0 per share. The dividends are expected to grow at a rate of 25% for the next two years, with the growth rate falling off to a constant 7 percent thereafter. If you require a 16% returns on your investment,..
Evaluate the converged standard, IFRS 15-revenues from contracts with customers, contrasting it with the superceded IASB standard, IAS 18 -Revenue.
Finding the WACC. Given the following information for Janicek Power Co., find the WACC. Assume the company’s tax rate is 35 percent. Debt: 8,500 7.2 percent coupon bonds outstanding, $1,000 par value, 25 years to maturity, selling for 118 percent of ..
Home Depot sells on terms 2/20 net 70, what is the implicit cost of trade credit under these terms. Use 365 day year. Round 2 decimals in percentage…
The First City Bank pays 6.6 percent interest, compounded annually, on time deposits. The Second City Bank pays 6.5 percent interest, compounded monthly. Based on effective interest rates, in which bank would you prefer to deposit your money?
Give one example of a service firm that either uses a focus/differentiation strategy or a focus/cost leadership strategy. Briefly describe the market segment served by the firm. Rate the complexity and rate the divergence of the firm’s service operat..
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