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mixer [17]
3 years ago
12

​Ernst's Electrical has a bond issue outstanding with ten years to maturity. These bonds have a​ $1,000 face​ value, a 5 percent

​ coupon, and pay interest semiminusannually. The bonds are currently quoted at 96 percent of face value. What is​ Ernst's pretax cost of​ debt?
Business
1 answer:
SVEN [57.7K]3 years ago
8 0

Answer: 5.52%

Explanation:

Given the following :

Face value (f) = $1000

Bond price(p) = 96% of face value = 0.96 × 1000 = $960

Coupon rate = 5% Semi-annually = 0.05/2 = 0.025

Payment per period (C) = 0.025 × 1000 = $25

Period(n) = 10 years = 10 × 2 = 20

Semiannual Yield to maturity = [(((f-p)/n) + C) / (f + p)/2]

Semiannual YTM = [(((1000 - 960) / 20) + 25) / (1000 + 960)/2]

Semiannual Yield to maturity = [(((40 /20) + 25) / 1960/2]

= (2 + 25) / 980

= 27 / 980 = 0.02755 = 2.755% = 2.76%

Pretax cost of debt = Yield to maturity = 2 × Semiannual yield to maturity

Pretax cost of debt = 2 × 2.76% = 5.52%

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Explanation:

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3 years ago
By lowering production costs, subsidies help foreign competitors gain export markets. True or False
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Answer:

False

Explanation:

Whenever, there will be reduced production costs, due to any reason in the economy, then the goods will be cheaper and accordingly the sale will be in abundance assuming other factors remain constant.

Thus, due to subsidies the cost to producers will be less and then exporters will not be able to get more share as domestic goods will cost cheaper.

Thus, there will not be any gain to foreign competitors in our domestic markets, as they will not get any share extra rather they will loose as a foreign competitor. In fact goods which are exported will also cost low, and therefore, will gain new customers.

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3 years ago
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Var Rp = x1 2Var R1 + x2 2Var R2 +2 x1 x2 Corr (R1, R2) SD1 SD2

Var Rp = 0.14 + 0.44 + 2 (1) * (-1) * 6% * 24%

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3 years ago
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