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vova2212 [387]
1 year ago
9

Are the costs of debt and equity observable in the capital markets? If not, how do you estimate that cost of capital?

Business
1 answer:
Levart [38]1 year ago
3 0

Depending on the supply and demand of equity, a bond’s price can vary, thus the premium or discount price.

For example, when the interest rate falls, older bonds may become valuable because they were sold in a higher interest rate environment and therefore with a higher coupon rate. Consequently, investors holding those bonds can commend a "premium" to sell equity. On the other hand, if the interest rate rises, older bonds may become less valuable. In order to get rid of them, investors may have to sell for less, thus the "discount” price.

Bond prices are quoted as a percent of the bond’s face value, and an easy way to learn the price of a bond is simply by adding a zero to the price quoted. For instance, when you hear a bond is quoted at 99, it means the price for the bond is $990 for every $1,000 of face value. Because the bond price is below the face value, it’s said the bond is traded at a discount. On the other hand, if the bond is trading at 101, it means you will pay $1,010 to get that $1,000 face value bond.

The dividend discount model (DDM) is a procedure for valuing the price of a stock by using the predicted dividends and discounting them back to the present value. If the value obtained from the DDM is higher than what the shares are currently trading at, then the stock is undervalued.

Learn more about   equity here

brainly.com/question/1957305

#SPJ4

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Who creates and influence the culture of an organization
Svetradugi [14.3K]

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On December 31, Strike Company traded-in one of its batting cages for another one that has a cost of $500,000. Strike receives a
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Which descriptions about simple interest and yearly compounded interest are true? Check all that apply.
garik1379 [7]

Descriptions about simple interest and yearly compounded interest are true are :

  • Only compound interest has an exponent in its formula.
  • Simple interest is only earned on the original principal investment.
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<h3>What is  simple interest and compound interest?</h3>

Simple interest is the one that the calculation is based on principal, or  of a loan.

Compound interest is base on  principal amount as well as the accumulated interest of previous periods.

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