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Case 14 Atlantic Airlines in Financial Management

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At the time of issue Atlantic Airlines junk bonds were paying 12% (20 yr bonds).;1.If the yield in the market for bonds of this nature were to go up to 15 percent due to poor economic conditions, what would be the price of the bonds be? They have an initial par value of $1000. Assume 2 years have passed and there are 18 yrs remaining on the life of the bonds.;2. 2.compare the decline in value to the eight percent initial interest advantage over Treasure bonds(12% versus four percent) for this two year holding period. base your analysis on a $1000 bond. disregarding tax consideration? would tom come out ahead or behind in buying the High yield bonds?;3.Recompute the price of the bonds if interest rates went up by only 1% to 13% with 18 years remaining. does the 8% interest rate advantage over the two year holding period cover the loss in value;4;5

 

Paper#75678 | Written in 18-Jul-2015

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