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What is the market value of xyz bonds

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Reference no: EM132630495

The following information relates to XYZ Ltd.

  • XYZ has 200,000 bonds outstanding with a Face Value of $100 each and 8 years to maturity. They pay an annual coupon of 7%. The yield on the bonds is 7% p.a. XYZ's marginal corporate tax rate is 30%.
  • XYZ has 1 million ordinary shares on issue. The shares have a Beta of 1.2, the market risk premium is 12.5% and the risk-free rate is 3%. These shares are expected to pay a dividend of $4.80 next year, and this dividend is expected to grow at a constant rate of 2% in perpetuity.

(a) What is the market value of XYZ's bonds?

(b) What is XYZ's cost of ordinary shares?

(c) What are the price and market value of XYZ's ordinary shares?

Reference no: EM132630495

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