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Question - After your discussions, Jane decides to obtain additional funding through the issuance of $10,000,000 in bonds with annual coupon (stated or contractual) rate of 6%, interest paid every six months (semi-annually) and a maturity date 10 years from date of issuance. After marketing the bonds to a select group of investors, Jane's investment bankers tell her they can sell the bonds, but the bonds must provide a market yield of 7% annually.
i. Will the bonds sell at a discount or premium?
ii. What is the amount of funds received from the investors?
iii. Explain in words how does selling the bonds at a discount or premium impact interest expense recorded on the Company's financial statements during the periods the debt is outstanding?
iv. What is the outstanding balance of the debt reflected on Company's balance sheet immediately following the 6th interest payment? (maturity is now in 7 years and assume no change in market yield of 7%)
Hubbard argues that the Fed can control the Fed funds rate, but the interest rate that is important for the economy is a longer-term real rate of interest. How much control does the Fed have over this longer real rate?
Coures:- Fundamental Accounting Principles: - Explain the goals and uses of special journals.
Accounting problems, Draw a detailed timeline incorporating the dividends, calculate the exact Payback Period b) the discounted Payback Period. the IRR, the NPV, the Profitability Index.
Term Structure of Interest Rates
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Your Corp, Inc. has a corporate tax rate of 35%. Please calculate their after tax cost of debt expressed as a percentage. Your Corp, Inc. has several outstanding bond issues all of which require semiannual interest payments.
Simple Interest, Compound interest, discount rate, force of interest, AV, PV
CAPM and Venture Capital
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