FIN 571 Week 4 Connect Problems Updated
Q-1
Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 20 years to maturity, and a coupon rate of 7 percent paid annually.
If the yield to maturity is 8.1 percent, what is the current price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Q-1 (Set 2)
Watters Umbrella Corp. issued 30-year bonds 2 years ago at a coupon rate of 7.4 percent. The bonds make semiannual payments. If these bonds currently sell for 83 percent of par value, what is the YTM? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
2.Microhard has issued a bond with the following characteristics:
Par: $1,000
Time to maturity: 15 years
Coupon rate: 11 percent
Semiannual payments
Calculate the price of this bond if the YTM is (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.):
Q-2 (Set 2)
Union Local School District has bonds outstanding with a coupon rate of 3.7 percent paid semiannually and 15 years to maturity. The yield to maturity on these bonds is 4.3 percent and the bonds have a par value of $5,000.
What is the dollar price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Q-3 (Set 1)
Yan Yan Corp. has a $2,000 par value bond outstanding with a coupon rate of 5.5 percent paid semiannually and 16 years to maturity. The yield to maturity of the bond is 5.8 percent.
What is the dollar price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Q-3 (Set 2)
A Japanese company has a bond outstanding that sells for 90 percent of its ¥100,000 par value. The bond has a coupon rate of 5.7 percent paid annually and matures in 19 years.
What is the yield to maturity of this bond? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Q-3(Set 3)
Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of ? 1000, 25 years to maturity, and a coupon rate of 6.4 percent paid annually. If the yield to maturity is 7.5 percent, what is the current price of the bond?
Q-4 (Set 1)
The next dividend payment by ECY, Inc., will be $1.96 per share. The dividends are anticipated to maintain a growth rate of 4 percent, forever. The stock currently sells for $39 per share.
What is the dividend yield? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Dividend yield %
What is the expected capital gains yield? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Capital gains yield %
Q-4 (Set 2)
4.Schiller Corporation will pay a $3.14 per share dividend next year. The company pledges to increase its dividend by 5 percent per year, indefinitely. If you require a return of 12 percent on your investment, how much will you pay for the company’s stock today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
5. Siblings, Inc., is expected to maintain a constant 3.6 percent growth rate in its dividends, indefinitely. The company has a dividend yield of 5.4 percent.
What is the required return on the company’s stock? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Required return %
5. (Set 2) The next dividend payment by ECY, Inc., will be $1.60 per share. The dividends are anticipated to maintain a growth rate of 6 percent, forever. The stock currently sells for $30 per share.
What is the required return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Q-6 (Set 1)
Ayden, Inc., has an issue of preferred stock outstanding that pays a dividend of $6.75 every year, in perpetuity. This issue currently sells for $93 per share.
What is the required return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Q-6 (Set 2)
6. The Starr Co. just paid a dividend of $1.55 per share on its stock. The dividends are expected to grow at a constant rate of 6 percent per year, indefinitely. Investors require a return of 14 percent on the stock.
What is the current price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
What will the price be in three years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
What will the price be in 7 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
7. Zoom stock has a beta of 1.46. The risk-free rate of return is 3.07 percent and the market rate of return is 11.81 percent. What is the amount of the risk premium on Zoom stock?
8. The risk premium for an individual security is computed by:
9. The risk-free rate of return is 3.68 percent and the market risk premium is 7.84 percent. What is the expected rate of return on a stock with a beta of 1.32?
10. Mullineaux Corporation has a target capital structure of 70 percent common stock and 30 percent debt. Its cost of equity is 18 percent, and the cost of debt is 6 percent. The relevant tax rate is 30 percent.
What is the company’s WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Question 10 Set 2
Central Systems, Inc. desires a weighted average cost of capital of 9 percent. The firm has an after-tax cost of debt of 5 percent and a cost of equity of 12 percent. What debt-equity ratio is needed for the firm to achieve its targeted weighted average cost of capital?
11.Miller Manufacturing has a target debt–equity ratio of .55. Its cost of equity is 14 percent, and its cost of debt is 9 percent. If the tax rate is 40 percent, what is the company’s WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places,
12.Filer Manufacturing has 4 million shares of common stock outstanding. The current share price is $76, and the book value per share is $5. The company also has two bond issues outstanding. The first bond issue has a face value $90 million, a coupon of 5 percent, and sells for 94 percent of par. The second issue has a face value of $70 million, a coupon of 6 percent, and sells for 104 percent of par. The first issue matures in 20 years, the second in 3 years.
a. What are the company’s capital structure weights on a book value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.)
b. What are the company’s capital structure weights on a market value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.)
c. Which are more relevant?
13. Titan Mining Corporation has 8.9 million shares of common stock outstanding and 330,000 5 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $37 per share and has a beta of 1.45, and the bonds have 15 years to maturity and sell for 118 percent of par. The market risk premium is 7.7 percent, T-bills are yielding 4 percent, and the company’s tax rate is 40 percent.