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A newly issued bond has a maturity of 3 years and pays a 7% coupon rate (with coupon payments coming semiannually). The bond sells at par value. (a) What is the modified duration of the bond? (b) Find the actual price of the bond assuming that its yield to maturity (BEY) immediately increases to 10%. (c) What price would be predicted by the duration rule? The predicted change in the price using the modified duration times the change in the yield is just an approximation of the true change in price. What is the percentage error of that rule in this case?
A newly issued 10-year maturity, 6% coupon bond making annual coupon payments is sold to the public at a price of $955. What will be an investor’s taxable income from the bond over the coming year? The bond will not be sold at the end of the year.
Using the free cash flow method of valuation, an analyst determines the value of Company A's stock to be $12 and the value of Company B's stock to be $15. Other things be held constant, what could account for the higher valuation for Company B?
Define the various capital budgeting methods such as net present value (NPV), internal rate of return (IRR), and so on, and explain how they differ from one another. Identify which, if any, of the methods discussed might be superior to the others and..
Project K costs $50,000, its expected cash inflows are $14,000 per year for 6 years, and its WACC is 10%. What is the project's NPV? Project K costs $53,364.04, its expected cash inflows are $11,000 per year for 10 years, and its WACC is 13%. What i..
Payne Product's sales last year were anemic $1.6 million, but with an improved product mix it expects sales growth to be 25% this year, and Payne would like to determine the effect of various current asset policies on its financial performance. What ..
The Walgreen Corporation is contemplating a new investment that it plans to finance using one-third debt. The firm can sell new $1000 par value with a 15-year maturity at a price of $954 that carry a coupon interest rate of 12.2 percent that is paid ..
What is the price of the coupon bond. What is the yield to maturity of the coupon bond. Under the expectations hypothesis, what is the expected realized compound yield of the coupon bond
You are going to receive $205,000 in 50 years. What is the difference in present value between using a discount rate of 14 percent versus 9 percent? Use Appendix B as an approximate answer, but calculate your final answer using the formula and financ..
Weisbro and Sons common stock sells for $32 a share and pays an annual dividend that increases by 4.2 percent annually. The market rate of return on this stock is 9.90 percent. What is the amount of the last dividend paid by Weisbro and Sons?
A manufacturing company is considering a new investment in a machine that will cost $117,000 and has an annual cost of $7,900. There is also an additional overhauling cost of $24,000 for the equipment once every four years. Assuming that this equipme..
A treasury bill with 64 days to maturity is quoted at 99.012. what is the bank discount yield, the bond equivalent yield and the effective annual return?
App Store Co. issued 17-year bonds one year ago at a coupon rate of 6.3 percent. The bonds make semi-annual payments. If the YTM on these bonds is 5.5 percent, what is the current bond price? (Do not round intermediate calculations. Round your answer..
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