Answer:
Explanation:
1. ) A bond that pays coupons is referred to as a coupon paying bond while that which doesn't pay coupons is known as a Zero-coupon bond.
The bond you are given bond has an annual coupon rate of 6% paid semiannually means that it will pay (6% / 2) = 3% every 6 months.
Semiannual coupon payment = semiannual coupon rate * Face value
The standard face value of a bond is $1000, therefore,
Semiannual coupon payment = 3%*1000 = $30
2.) WACC is weighted average cost of capital that takes into consideration the leverage effects of adding debt into a company's capital structure.
The formula for calculating WACC = wE*rE + wD*rD(1-tax)
wE = weight of equity = 250,000,000/1,000,000,000 = 0.25 or 25%
rE = cost of equity = 15% or 0.15 as a decimal
wD = weight of debt = 750,000,000/1,000,000,000 = 0.75 or 75%
rD = pretax cost of debt = 12% or 0.12 as a decimal
WACC = (0.25 *0.15) + [ 0.75*0.12(1-0.35) ]
= 0.0375 + 0.0585
= 0.096 or 9.6%
Therefore, WACC is 9.60%
