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tia_tia [17]
3 years ago
7

Karen Austin Inc. has issued three types of debt on January 1, 2020, the start of the company’s fiscal year.(a) $10 million, 10-

year, 15% unsecured bonds, interest payable quarterly. Bonds were priced to yield 12%.(b) $25 million par of 10-year, zero-coupon bonds at a price to yield 12% per year.(c) $20 million, 10-year, 10% mortgage bonds, interest payable annually to yield 12%.
Business
1 answer:
icang [17]3 years ago
3 0

Answer:

Explanation:

Yield rate on unsecured bonds=12%

Yield rate on zero coupon bond=12%

Yield rate on 10% mortgage bonds=12%

Total debt value=10m+25m+20m=55m

Weight of unsecured bonds=10/55=0.182

Weight of zero coupon bonds=25/55=0.455

Weight of 10% mortgage bonds = 20/55= 0.363

Cost of debt=0.182*12+ 0.455*12+0.363*12=12%

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The coupon rate is the rate of interest that the issuer of the bond must pay. (II) The coupon rate is usually fixed for the dura
lyudmila [28]

Answer:

TRUE

Explanation:

The coupon rate for a bond is fixed and is paid by the issuer of the bond to the bondholder. The cash outlay/inflow to the issuer/bondholder is always the same reardless of the market rate.

The effect of the market rate is on the cost to acquire the bond in the secondary market. It do not change the coupon obligation.

3 0
3 years ago
Andrew Industries is contemplating issuing a ​-year bond with a coupon rate of ​(annual coupon​ payments) and a face value of .
zepelin [54]

Answer:

The numbers are missing, so I looked for a similar question to fill in the blanks:    

<em>Andrew Industries is contemplating issuing a 30​-year bond with a coupon rate of 7.13% ​(annual coupon​ payments) and a face value of $1,000. Andrew believes it can get a rating of A from Standard​& Poor's.​ However, due to recent financial difficulties at the​ company, Standard​ & Poor's is warning that it may downgrade Andrew​ Industries' bonds to BBB. Yields on​ A-rated, long-term bonds are currently 6.43%​, and yields on​ BBB-rated bonds are 6.84%. </em>

a. What is the price of the bond if Andrew Industries maintains the A rating for the bond​ issue?

if the YTM is 6.43%, then the market price will be:

0.0643 = {71.30 + [(1,000 - M)/30]}/ [(1,000 + M)/2]

0.0643 x [(1,000 + M)/2] = 71.30 + [(1,000 - M)/30]

0.0643 x (500 + 0.5M) = 71.30 + 33.33 - 0.03333M

32.15 + 0.03215M = 104.63 - 0.03333M

0.06548M = 72.48

M = 72.48 / 0.06548 = $1,106.90

b. What will be the price of the bond if it is​ downgraded?

if the YTM is 6.84%, then the market price will be:

0.0684 = {71.30 + [(1,000 - M)/30]}/ [(1,000 + M)/2]

0.0684 x [(1,000 + M)/2] = 71.30 + [(1,000 - M)/30]

0.0684 x (500 + 0.5M) = 71.30 + 33.33 - 0.03333M

34.20 + 0.0342M = 104.63 - 0.03333M

0.06753M = 70.43

M = 70.43 / 0.06753 = $1,042.94

6 0
2 years ago
What is the maximum number of withdrawals per month for a money market account?
vladimir2022 [97]
The answer should be 6. Six
7 0
3 years ago
Doug Stamper just received an insurance settlement offer related to an accident he had several years ago. The offer gives Stampe
sladkih [1.3K]

Answer:

Doug Stamper

The CORRECT statement is:

b. Option A is the best choice because it has the largest present value.

Explanation:

a) Data and Calculations:

Option A: $2,000 per month for 84 months is worth PV = $136,906.08:

N (# of periods)  84

I/Y (Interest per year)  6

PMT (Periodic Payment)  2000

FV (Future Value)  0

 

Results

PV = $136,906.08

Sum of all periodic payments $168,000.00

Total Interest $31,093.92

Option B: $1,100 per month for 15 years is worth PV = $130,353.87:

N (# of periods)  180

I/Y (Interest per year)  6

PMT (Periodic Payment)  1100

FV (Future Value)  0

Results

PV = $130,353.87

Sum of all periodic payments $198,000.00

Total Interest $67,646.13

Option C: $125,000 lump sum today is equal to PV.

5 0
2 years ago
a company had net cash flows from operations of $139,000, cash flows from financing of $368,000, total cash flows of $557,000, a
Vanyuwa [196]

The Cash flow on total assets ratio equals 3.8%.

Cash flow on total assets = cash flows from operations / average total assets

= 139,000 / 3,640,000 = 3.8%

A measure of profit called cash flow on total assets measures actual cash flows to the assets of the business without taking into account income recognition or income measurements. By dividing operating cash flows by average total assets, one can obtain the cash flow on total assets ratio. There may be a considerable reason for concern if the ratio falls below 10%. For a business to sustain long-term growth, it is necessary to have a positive cash flow, which essentially implies that more money goes into the till than it does out.

Learn more about Cash flow here:

brainly.com/question/28238360

#SPJ4

6 0
1 year ago
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