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BUSN 602 Week 4 Homework April2014




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 ina 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 10-2What are the major sources of long-term funds available to business corporations? Indicate their relativeimportance.Answer:TDiscussion Question 10-8Briefly describe the types of bonds that can be issued to provide bondholder security.Answer:TDiscussion Question 10-11Why might a firm want to maintain a high bond rating? What has been happening to bond ratings in recent years?Answer:TExercise 10-1Compute 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 cellsPar valueInterest rateFFYearInflationPar value123FFFCCCAnnual couponinterestCCCExercise 10-4Assume 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 rateYears to maturityNumber of coupon payments per yearPar valueMarket rateFFFFFStep 2:Compute periodic interest rateCompute number of periodsCompute coupon cash flowCCCStep 3:Bond price (use PV)C(APR)Exercise 10-6The 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 cellsStep 1:Coupon RateYears to maturityNumber of coupon payments per yearPar Valuea. PV 16% rate of b. PV 12% rate ofreturnreturnFFFFFFFFStep 2:Compute periodic interest rateCompute number of periodsCompute coupon cash flowCCCCCCStep 3:Bond price (use PV)CCExercise 10-23The 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 cellsRequired returnCValue of stock


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