What should the firm do

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Question

1. A firm has just issued (on January 1, 2017) a bond that has a face value of $1,000, a coupon rate of 6 percent paid semi-annually (on June 30 and December 31), and matures in 8 years. The bonds were issued with a yield to maturity of 7%. What price were the bonds issued at? Assume that on July 1, 2019, the bond trades to earn an effective annual yield of 8%. At what price should this bond be trading for on July 1, 2019?

PRICE WHEN ISSUED:

PRICE ON JULY 1, 2019:

2. A firm has found itself having cashflow problems. It pays its suppliers on terms of 3/20 net 60. In the past, it has always taken the cash discount. However, it finds itself in a situation where it cannot come up with the cash needed to pay within 20 days for purchases. In 60 days, it will have the necessary cash. If it chooses to borrow money to pay for purchases it would be forced to go to a finance company specializing in high-risk loans. It would be forced to pay a rate of 2.5 percent per month (30 percent APR) on the loan. What should the firm do?

Reference no: EM132390823

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