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padilas [110]
1 year ago
7

Gordon Industries has 6 percent coupon bonds outstanding with a face value of $1,000 and a market price of $959.21. The bonds pa

y interest annually and have a yield to maturity of 6.5 percent. How many years will it be until these bonds mature? a. 6.0 years
Business
1 answer:
algol131 year ago
3 0

12.0 years will take for these bonds to mature.

What is a coupon in bonds?

The term "coupon," which is also sometimes referred to as "coupon payment," refers to the annual interest rate that is paid on a bond from the date of issuance until maturity. It is described as being a percentage of the bond's face value. When discussing coupons, the coupon rate is frequently employed.

How does coupon rate affect bond price?

The price of bonds is significantly influenced by the coupon rate on a bond in comparison to current market interest rates. Bond prices increase when a coupon is more than the current interest rate; prices decrease when a coupon is lower.

Learn more about coupon in bonds: brainly.com/question/22504216

#SPJ4

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when machines are programmed to do multiple tasks in order to produce a variety of products, a firm is said to be employing?
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Answer:

- flexible

- manufacturing

Explanation:

7 0
2 years ago
Crockin Corporation is considering a machine that will save $9,000 a year in cash operating costs each year for the next six yea
Roman55 [17]

Answer:

IRR = 16.5%

Explanation:

T<em>he IRR is the discount rate that equates the present value of cash inflows to that of cash outflows. At the IRR, the Net Present Value (NPV) of a project is equal to zero  </em>

<em>If the IRR greater than the required rate of return , we accept the project for implementation  </em>

<em>If the IRR is less than that the required rate , we reject the project for implementation  </em>

IRR = a% + ( NPVa/(NPVa + NPVb)× (b-a)%

NPV = PV of annual savings - initial cost

PV of annual savings = A× (1- (1+r)^(-n) )/r

A- annual savings in operating cost , r- rate of return, n- number of years

NPVa  at 10% discount rate

PV of cash inflow = (9,000×  1-1.1^-6)/0.1 =   39,197.35  

NPV =    65,328.91 - 33,165 =  6,032.35  

NPVb at 20% discount rate

PV of cash inflow = (9,000×  1-1.2^-6)/0.2=  (3,235.41)

NPV = 29,929.59  -33,165 = (3,235.41)

IRR = a% + ( NPVa/(NPVa + NPVb)× (b-a)%

IRR = 10% + ( (6,032.35/(6,032.35 +3,235.41) )× (20-10)%= 16.51%

IRR = 16.5%

8 0
3 years ago
McDonald’s pressed on with the strategic plan of offering all-day breakfast in spite of initial struggles because strategic deci
Elenna [48]

Answer: True

Explanation:

Strategic decisions do indeed take long-term commitment because they are meant to help the company in the long term not the short.

Strategic decisions usually set goals and achieve results in the long term. They are not expected to yield results in the short terms which is why MacDonald's pressed on with the all-day breakfast despite initial challenges.

7 0
3 years ago
You are given the following information concerning Parrothead Enterprises: Debt: 9,300 7.4 percent coupon bonds outstanding, wit
Law Incorporation [45]

Answer:

a. Cost of debt = 5.03%.

b. Cost of equity = 11.47%

c. Cost of preferred stock = 4.90%

Explanation:

a. Calculation of cost of debt

The bond's Yield to Maturity is the before tax cost of debt and it can be calculated using the following RATE function in Excel:

YTM = RATE(nper,pmt,-pv,fv) * 2 .............(1)

Where;

YTM = yield to maturity = ?

nper = number of periods = number of semiannuals to maturity = Number of years * Number of semiannuals in a year = 21 * 2 = 42

r = semiannual coupon rate = Annual coupon rate / 2 = 7.4% / 2 = 0.074 / 2 = 0.037

pmt = semiannual coupon payment = semiannual coupon rate * Face value = 0.037 * $2,000 = $74 = 74

pv = present value = quoted bond price = 108.75% * fv = 108.75% * 2000 = 2,175 = 2175

fv = face value or par value of the bond = 2000

Substituting the values into equation (1), we have:

YTM = RATE(42,74,-2175,2000) * 2 ............ (2)

Inputting =RATE(42,74,-2175,2000)*2 into excel (Note: as done in the attached excel file), the YTM is obtained as 6.62%.

Therefore, we have:

After tax cost of debt = YTM * (100% - Tax rate) = 6.62% * (100% - 24%) = 5.03%

Therefore, cost of debt is 5.03%.

b. Calculation of cost of equity

Based on the information in the question, the return on equity can be calculated using the dividend discount model and capital asset pricing model (CAPM) formulae.

b-1. Using the dividend discount model formula, we have:

P = D1 / (r – g) ………………………. (3)

Where:

P = Common stock selling price per share = $66.40

D1 = Next year dividend = $4.60

r = return on equity = ?

g = dividend growth rate = 5.4%, or 0.054

Substituting the value into equation (3) and solve for r, we have:

66.40 = 4.60 / (r – 0.054)

66.40(r – 0.054) = 4.60

66.40r - 3.5856 = 4.60

66.40r = 4.60 + 3.5856

66.40r = 8.1856

r = 8.1856 / 66.40

r = 0.1233, or 12.33%

b-2. Using CAMP formula, cost of equity can be calculated as follows:

Return on equity = Risk free rate + Stock beta(Expected return – Risk free rate) = 4.55% + (1.09 * (10.1% - 4.55%)) = 10.60%

b-3. The cost of equity can therefore be calculated as the average of the returns of equity from the two formulae is as follows:

Cost of equity = (12.33% + 10.60%) / 2 = 11.47%

c. Calculation of cost preferred stock

Note that since the preferred stock selling price per share is $95.90, it indicates that it par value is $100 and is being sold at a discount. Therefore, we have:

Cost of preferred stock = (Preferred stock dividend rate * Preferred stock par value) / Preferred stock selling price per share = (4.70% * 100) / 95.90 = 0.0490, or 4.90%

Download xlsx
4 0
2 years ago
Monetary policy could be procyclical if the Federal Reserve: a) is late recognizing that a recession has begun and conducts expa
gladu [14]

A) is late recognizing that a recession has begun and conducts expansionary monetary policy.

6 0
3 years ago
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