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##### BUSN 602 Week 4 Homework April2014

**Description**

solution

**Question**

To complete the homework assignments in the templates provided;1. The question is provided for each problem. You may need to refer to your textbook for additional information in;a few cases.;2. You will enter the required information into the shaded cells.;3. The cells are coded;a) T requires a text answer. Essay questions require references, use the textbook.;b) C requires a calculation, using Excel formulas or functions. You cannot perform the operation on a calculator and then type the answer in the cell. You will enter the calculation in the cell, and only the final answer will show in the cell. I will be able to review your calculation and correct, if necessary.;c) F requires a number only. In some problems, a ?Step 1? is added to help you solve the problem.;d) Formula requires a written formula, not the numbers. For example, the rate of return = [(1 + nominal)/ (1+inflation)]-1, or D (debt) + E (equity) = V (value).;4. Name your assignment file as "LastnameFirstinitial-BUSN602-Week#", and submit by midnight ET, Day;7. Discussion Question 10-2;What are the major sources of long-term funds available to business corporations? Indicate their relative;importance.;Answer;T;Discussion Question 10-8;Briefly describe the types of bonds that can be issued to provide bondholder security.;Answer;T;Discussion Question 10-11;Why might a firm want to maintain a high bond rating? What has been happening to bond ratings in recent years?;Answer;T;Exercise 10-1;Compute the annual interest payments and principal amount for a Treasury InflationProtected Security with a par value of $1,000 and a 3-percent interest rate if inflation is 4 percent in year 1, 5 percent in year 2, and 6 percent in year 3.;Answer;Enter the answers in blue shaded cells;Par value;Interest rate;F;F;Year;Inflation;Par value;1;2;3;F;F;F;C;C;C;Annual coupon;interest;C;C;C;Exercise 10-4;Assume a $1,000 face value bond has a coupon rate of 8.5 percent paid semiannually and has an eight-year life. If investors are willing to accept a 10 percent rate of return on bonds of similar quality, what is the present value or worth of this bond?;Answer;Step 1;Coupon rate;Years to maturity;Number of coupon payments per year;Par value;Market rate;F;F;F;F;F;Step 2;Compute periodic interest rate;Compute number of periods;Compute coupon cash flow;C;C;C;Step 3;Bond price (use PV);C;(APR);Exercise 10-6;The Garcia Company?s bonds have a face value of $1,000, will mature in 10 years, and carry a coupon rate of 16 percent.;Assume interest payments are made semiannually.;a. Determine the present value of the bond?s cash flows if the required rate of return is 16 percent.;b. How would your answer change if the required rate of return is 12 percent?;Answers;Enter the answers in blue shaded cells;Step 1;Coupon Rate;Years to maturity;Number of coupon payments per year;Par Value;a. PV 16% rate of b. PV 12% rate of;return;return;F;F;F;F;F;F;F;F;Step 2;Compute periodic interest rate;Compute number of periods;Compute coupon cash flow;C;C;C;C;C;C;Step 3;Bond price (use PV);C;C;Exercise 10-23;The Joseph Company has a stock issue that pays a fixed dividend of $3.00 per share annually. Investors believe the nominal risk-free rate is 4 percent and that this stock should have a risk premium of 6 percent. What should be the value of this stock?;Answer;Enter the answers in blue shaded cells;Required return;C;Value of stock

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