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finance data bank




Question;[i]. You are the owner of 100;bonds issued by Euler, Ltd. These bonds;have 8 years remaining to maturity, an annual coupon payment of $80, and a par;value of $1,000. Unfortunately, Euler is;on the brink of bankruptcy. The creditors, including yourself, have agreed to a;postponement of the next 4 interest payments (otherwise, the next interest;payment would have been due in 1 year).;The remaining interest payments, for Years 5 through 8, will be made as;scheduled. The postponed payments will;accrue interest at an annual rate of 6 percent, and they will then be paid as a;lump sum at maturity 8 years hence. The;required rate of return on these bonds, considering their substantial risk, is;now 28 percent. What is the present;value of each bond?;a. $538.21;b. $426.73;c. $384.84;d. $266.88;e. $249.98;[ii]. Marie Snell recently;inherited some bonds (face value $100,000) from her father, and soon thereafter;she became engaged to Sam Spade, a University;of Florida marketing;graduate. Sam wants Marie to cash in the;bonds so the two of them can use the money to "live like royalty" for;two years in Monte Carlo. The 2 percent annual coupon bonds mature on January 1, 2024, and it is;now January 1, 2004. Interest on these bonds is paid annually on;December 31 of each year, and new annual coupon bonds with similar risk and;maturity are currently yielding 12 percent.;If Marie sells her bonds now and puts the proceeds into an account which;pays 10 percent compounded annually, what would be the largest equal annual;amounts she could withdraw for two years, beginning today (i.e., two payments;the first payment today and the second payment one year from today)?;a. $13,255;b. $29,708;c. $12,654;d. $25,305;e. $14,580;[iii]. Due to a number of lawsuits;related to toxic wastes, a major chemical manufacturer has recently experienced;a market reevaluation. The firm has a;bond issue outstanding with 15 years to maturity and a coupon rate of 8;percent, with interest paid semiannually.;The required nominal rate on this debt has now risen to 16 percent. What is the current value of this bond?;a. $1,273;b. $1,000;c. $7,783;d. $ 550;e. $ 450;[iv]. JRJ Corporation recently;issued 10-year bonds at a price of $1,000. These bonds pay $60 in interest each;six months. Their price has remained;stable since they were issued, i.e., they still sell for $1,000. Due to additional financing needs, the firm;wishes to issue new bonds that would have a maturity of 10 years, a par value;of $1,000, and pay $40 in interest every six months. If both bonds have the same yield, how many;new bonds must JRJ issue to raise $2,000,000 cash?;a. 2,400;b. 2,596;c. 3,000;d. 5,000;e. 4,275;[v]. Assume that you are;considering the purchase of a $1,000 par value bond that pays interest of $70;each six months and has 10 years to go before it matures. If you buy this bond, you expect to hold it;for 5 years and then to sell it in the market.;You (and other investors) currently require a nominal annual rate of 16;percent, but you expect the market to require a nominal rate of only 12 percent;when you sell the bond due to a general decline in interest rates. How much should you be willing to pay for;this bond?;a. $ 842.00;b. $1,115.81;c. $1,359.26;d. $ 966.99;e. $ 731.85;[vi]. Assume that a 15-year;$1,000 face value bond pays interest of $37.50 every 3 months. If you require a nominal annual rate of;return of 12 percent, with quarterly compounding, how much should you be;willing to pay for this bond? (Hint: The;PVIFA and PVIF for 3 percent, 60 periods are 27.6748 and 0.1697, respectively.);a. $ 821.92;b. $1,207.57;c. $ 986.43;d. $1,120.71;e. $1,358.24;[vii]. Your client has been offered;a 5-year, $1,000 par value bond with a 10 percent coupon. Interest on this bond is paid quarterly. If your client is to earn a nominal rate of;return of 12 percent, compounded quarterly, how much should she pay for the;bond?;a. $ 800;b. $ 926;c. $1,025;d. $1,216;e. $ 981;[viii]. In order to accurately assess;the capital structure of a firm, it is necessary to convert its balance sheet;figures to a market value basis. KJM Corporation's balance sheet as of today, January 1, 2004, is as;follows;Long-term debt (bonds, at;par) $10,000,000;Preferred stock 2,000,000;Common stock ($10 par) 10,000,000;Retained earnings 4,000,000;Total debt and equity $26,000,000;The;bonds have a 4 percent coupon rate, payable semiannually, and a par value of;$1,000. They mature on January 1, 2014. The yield to maturity is 12 percent, so the;bonds now sell below par. What is the;current market value of the firm's debt?;a. $5,412,000;b. $5,480,000;c. $2,531,000;d. $7,706,000;e. $7,056,000;[ix]. You just purchased a;15-year bond with an 11 percent annual coupon.;The bond has a face value of $1,000 and a current yield of 10 percent.;Assuming that the yield to maturity of 9.7072 percent remains constant, what;will be the price of the bond 1 year from now?;a. $1,000;b. $1,064;c. $1,097;d. $1,100;e. $1,150;[x]. Cold Boxes Ltd. has 100;bonds outstanding (maturity value = $1,000). The nominal required rate of;return on these bonds is currently 10 percent, and interest is paid;semiannually. The bonds mature in 5;years, and their current market value is $768 per bond. What is the annual coupon interest rate?;a. 8%;b. 6%;c. 4%;d. 2%;e. 0%..


Paper#50906 | Written in 18-Jul-2015

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