6.58 percent e. 11.11 percent . Which of the following statements is most correct? For example, assume a 20-year corporate bond pays a 5 percent coupon rate, has a $1,000 par value and shows a price of 104.89. a. Find information on government bonds yields, bond spreads, and interest rates. This means its price is 104.89 percent of its par value. If the corporate cost of capital is 12%, then a manager might think, I’m going to use 15% to be on the safe side. E. 3.32 years 3.32 = (12%*1) + (11 What is the bond's duration in, 3.32 = (12%*1) + (11%*2) + (10%*3) + (67%*4), 36. Find the top rated Corporate Bond mutual funds. 17. The Bigelow Company has a cost of equity of 12 percent, a pre-tax cost of debt of 7 percent, and a tax rate of 35 percent. Bond Price = R… A bond selling to yield 7 percent after flotation costs, but before adjusting for the marginal corporate tax rate of 34 percent. Find information on government bonds yields, bond spreads, and interest rates. Question 32 Douglass Enterprises has a capital structure which is based on 40 percent debt, 10 percent preferred stock, and 50 percent common stock. Example: You are considering buying a corporate bond. A six year maturity bond has a five year duration. A corporate bond returns 12 percent of its cost (in PV terms) in the first year, 11 percent in the second year, 10 percent in the third year and the remainder in the fourth year. (TCO B) A corporate bond returns 12% of its cost (in PV terms) in the first year, 11% in the second year, 10% in the third year, and the remainder in the fourth year. The call price is $1,050. 40. Bond Price = 92.6 + 85.7 + 79.4 + 73.5 + 68.02 + 680.58 3. Cost of capital is the minimum rate of return that a business must earn before generating value. You collected a $2 dividend, per share each year you held the stock and then you sold the stock for $47 per share. Compute the cost of these bonds : -A bond that has a RM1000 par value and coupon rate of 12 percent. A. What range of returns would you expect to see 68 percent of the time on this security?-2.5 percent to 13.9 percent-3.4 percent to 25.8 percent –18 16. You bought a stock three years ago and paid $45 per share. The company currently has outstanding a bond with a 12 percent coupon rate and a convertible bond with an 8.1 percent coupon rate. CC 15.1: You are analyzing a firm that has made extraordinary returns on its projects over the last 10 years, largely as a consequence of a few products that are patent protected. A bond's price is what investors are willing to pay for an existing bond. A 4 year maturity 0% coupon corporate bond with a required rate of return of 12% has an, 43. A 10-year corporate bond has an annual coupon payment of 9 percent. It may seem like an easy choice to choose the corporate bond over a municipal bond offering 5.5 percent. 37. The Federal Reserve has also thrown in its support, buying up corporate bonds and even bond ETFs over the past couple months, in turn driving up private purchases of debt. A corporate bond is a loan to a company for a predetermined period. A corporate bond returns 12 percent of its cost (in PV terms) in the first year, 11 percent in the second year, 10 percent in the third year and the remainder in the fourth year. What is the bond's duration? ECON Final Study Guide - 1 A corporate bond returns 12 of its cost(in PV terms in the first year 11 in the second year 10 in the third year and the 1. Mr. Glass, the vice-president of finance, has given you the following information and has asked you to compute the weighted average cost of capital.… Therefore, a corporate bond of $1,000 in face value and 5 percent coupon rate with two years left to maturity has a market value of $1,018.86 when the market interest rate is 4 percent. What is the bond's duration in years? Over the next year maturity will decline, 45. This firm's bonds are currently selling for $ Zero-Coupon Bond: A zero-coupon bond is a debt security that doesn't pay interest (a coupon) but is traded at a deep discount, rendering profit at maturity when the bond is redeemed for its … But the number likely already includes a cushion. For example, assume a 20-year corporate bond pays a 5 percent coupon rate, has a $1,000 par value and shows a price of 104.89. The bond is currently selling at par ($1,000). The company anticipates that its proposed investment projects will be financed with 70 percent debt and 30 percent equity. The _____ the coupon and the _____ the maturity; the _____ the duration of a bond, 40. The Bigelow Company has a cost of equity of 12 percent, a pre-tax cost of debt of 7 percent, and a tax rate of 35 percent. For instance, for a contractor with poor credit who has a 3 percent rate on a $500,000 bond, the cost would be $15,000. Investors tend to shy away from discussions of bond duration because the underlying math is relatively difficult. (That is, the semiannual coupon payments are $45.) 9.21 percent c. 10.01 percent d. 10.13 percent a. A. on the bond is 1.062 1 12.36%, not 12 percent. Graph and download economic data for ICE BofA AA US Corporate Index Effective Yield (BAMLC0A2CAAEY) from 1996-12-31 to 2021-01-07 about AA, yield, corporate… If you've held a bond over a long period of time, you might want to calculate its annual percent return, or the percent return divided by the number of years you've held the investment. share each year you held the stock and then you sold the stock for $47 per share. The The risk-free rate of return is the interest rate an investor can expect to earn on an investment that carries zero risk. Example: You are considering buying a corporate bond. If an N year security recovered the same percentage of its cost in PV terms each year the. surety bond cost calculator, Imagine that, for $100,000, an investor is willing to accept an effective interest rate of 6 percent. The firm could sell, at par, $100 preferred stock which pays a 12 percent annual dividend, but flotation costs of 5 percent would be incurred. A corporate bond that matures in 12 years pays a 9 percent annual coupon, has a face value of $1,000, and a yield to maturity of 7.5 percent. Get updated data about global government bonds. Level Difficult 35 A corporate bond returns 12 of its cost in PV terms in the, 42 out of 46 people found this document helpful, 35. It is vital in calculating the weighted average cost of capital WACC WACC is a firm’s Weighted Average Cost of Capital and represents its blended cost of capital including equity and debt. Its bonds have a 12 percent coupon, paid semiannually, a current maturity of 20 years, and sell for $1,000. 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