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Annette [7]
3 years ago
15

Currently, Bruner Inc.'s bonds sell for $1,250. They pay a $120 annual coupon, have a 15-year maturity, and a $1,000 par value,

but they can be called in 5 years at $1,050. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. What is the difference between this bond's YTM and its YTC? (Subtract the YTC from the YTM.) 2.11% 2.32% 2.55% 2.80% 3.09%
Business
1 answer:
elena-14-01-66 [18.8K]3 years ago
6 0

Answer:

2.11%

YTM 0.089142162

YTC 0.068070103

Difference: 0.021072059 = 0.0211 = 2.11%

Explanation:

To calculate each rate we must solve for a rate at which the future coupon payment and maturity (or call value) equals the market price:

This is solve for excel and goal seek tool

It could also be solve with a financial calculator

YTC:

C \times \frac{1-(1+r)^{-time} }{rate} = PV\\

Coupon payment: $ 120

time 5 yeaars

rate 0.068070103 (solved with excel)

120 \times \frac{1-(1+0.0680701028057608)^{-5} }{0.0680701028057608} = PV\\

PV $494.5766

\frac{Maturity}{(1 + rate)^{time} } = PV  

Maturity: $ 1,050 (call price)

time   5.00

rate  0.068070103

\frac{1050}{(1 + 0.0680701028057608)^{5} } = PV  

PV   755.42

PV c $494.5766

PV m  $755.4235

Total $1,250.0002

YTM:

C \times \frac{1-(1+r)^{-time} }{rate} = PV\\

Cuopon payment: $ 120

time 15 years

rate 0.089142162 (solved with excel)

120 \times \frac{1-(1+0.0891421622982136)^{-15} }{0.0891421622982136} = PV\\

PV $972.2006

\frac{Maturity}{(1 + rate)^{time} } = PV  

Maturity $ 1,000.00

time   15 years

rate  0.089142162 (solved with excel)

\frac{1000}{(1 + 0.0891421622982136)^{15} } = PV  

PV   277.80

PV c $972.2006

PV m  $277.7995

Total $1,250.0001

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nirvana33 [79]

Answer:

The demand curve will look like a straight  line .

Explanation:

Perfect competition is that in which there are large number of buyers and large number of sellers of a commodity and no individual sellers or buyer can control the prices. If the seller try to influence the price then they will loss their buyers as there are many other seller also exist in the market.

Under perfect competition , the firm produce homogeneous product. Both buyers and sellers have full knowledge of the market.

The curve under perfect competition is indicated by horizontal . It shows that a firm can sell any quantity of a product at the prevailing price . And no quantity if they  influence the price.

<u>The figure under shows the curve:</u>

3 0
3 years ago
__________________ are ways that a nation can draw up regulations, inspections, and paperwork to make it more costly or difficul
Diano4ka-milaya [45]

Answer: Nontariff barriers

Explanation:

Nontariff barriers are trade barriers that are used whereby the import and export of goods and services are restricted. It should be noted that the restriction is not by tariffs but can include include embargoeds, quotas, sanctions, and levies.

The main reason for trade barriers are to generate revenue for the government and also to protect the local industries.

8 0
3 years ago
"A new issue corporate bond with dated date of June 1st is bought from the underwriter with settlement occurring on Monday, June
Tema [17]

Answer:

27 days

Explanation:

The accrued interest is calculated by beginning the count of days from the dated date of the corporate bond up until the settlement, without including the settlement date.

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4 0
3 years ago
You are given the following information for Watson Power Co. Assume the company’s tax rate is 23 percent. Debt: 8,000 5.7 percen
____ [38]

Answer:

the company's WACC is 10.04%

Explanation:

Weighted Average Cost of Capital (WACC) is the minimum return that a project must offer before it can be accepted. It shows the risk of the company.

<em>Capital Source           Market Value        Weight           Cost Total     Weight</em>  

Debt                            $8,400,000            27.71%             4.389 %      1.22%

Common stock           $24,190,000           71.17%              12.2%         8.68%

Preferred stock           $1,400,000              4.12%               3.5%         0.14%

Total                          $ 33,990,000          100.00%                            10.04%

<u><em>Calculation of Market Value and Cost of Debt</em></u>

Market Value = 8,000×($1,000×105%) = $8,400,000

Cost of Debt = interest × (1 - tax rate)

                      = 5.7% × ( 1-0.23)

                      =  4.389 %

<u><em>Calculation of Market Value and Cost of </em></u><u>Common stock</u>

Market Value = 410,000× $59 = $24,190,000

Cost of Common stock = Risk free Rate + Beta × Market Premium

                                       = 4.5% + 1.10× 7%

                                       = 12.2%

<u><em>Calculation of Market Value and Cost of </em></u><u>Common stock</u>

Market Value = 17,500× $80 = $1,400,000

Cost of Preferred stock = 3.5%

7 0
3 years ago
What benefit does a 401(k) plan provide over an IRA?
svetoff [14.1K]
Hello,

Your brainliest answer would be:

A benefit of 401k It is Less of investment risk.

Plz mark me brainliest!

Hope this helps!
5 0
3 years ago
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