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Ludmilka [50]
3 years ago
6

The yield to maturity on 1-year zero-coupon bonds is currently 6.5%; the YTM on 2-year zeros is 7.5%. The Treasury plans to issu

e a 2-year maturity coupon bond, paying coupons once per year with a coupon rate of 8.5%. The face value of the bond is $100.
a. At what price will the bond sell? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)
Price___$
b. What will the yield to maturity on the bond be? (Do not round intermediate calculations. Round your answer to 3 decimal places. Omit the "%" sign in your response.)
Yield to maturity__%
c. If the expectations theory of the yield curve is correct, what is the market expectation of the price that the bond will sell for next year? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)
Price__$
d. Recalculate your answer to (c) if you believe in the liquidity preference theory and you believe that the liquidity premium is 1%. (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)
Price___$.
Business
1 answer:
alex41 [277]3 years ago
5 0

Answer:

1. PV = 101.87

2. YTM = 7.46%

3. Price of the bond  is $100.92

Explanation:

PV = 8.5/ (1.065) + 108.5/ (1.075)2

PV = 7.981 + 93.889

PV = 101.87

Part B:

PV = 101.870

FV = 100

N = 2

PMT = 8.5

Using Financial Calculator:

r = 7.459237

YTM = 7.46%

Part C:

The forward rate for next year, derived from the zero-coupon yield curve, is approximately:

(1 + forward Rate) = (1 + 0.075)2/ (1.065)

forward rate = 8.51%

Price of the bond = 108.5/ (1.0851)

Price of the bond = 100

Part D:

Interest Rate = 8.51% - 1% = 7.51%

Price of the bond = 108.5/ (1.0751)

Price of the bond = 100.92

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The Baldwin Company currently has the following balances on their balance sheet: Total Liabilities $73,225 Common Stock $12,173
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Answer:

Their total assets next year has to be $124,725

Explanation:

<em>Step 1: Determine the initial assets and liabilities</em>

The total assets can be expressed as;

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C=common stock

E=retained earnings

In our case;

A=unknown

C=$12,173

E=$91,949

replacing;

A=12,173+91,949=$104,122

<em>Step 2: Determine total liabilities</em>

Total liabilities=initial liability+dividends

where;

Initial liability=$73,225

dividends=$15,000

replacing;

Total liabilities=73,225+15,000=$88,225

<em>Step 3: Determine new assets</em>

Using the formula;

Net profit=new assets-total liabilities

where;

Net profit=$36,500

new assets=unknown=n

total liabilities=$88,225

replacing;

36,500=n-88,225

n=36,500+88,225=$124,725

n=$124,725

Their total assets next year has to be $124,725

<em />

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3 years ago
Which one of the following is not true concerning socializing in the workplace? <br> A. Socializing can keep you from reaching y
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The correct answer is D. Socializing can actually increase productivity. Although socializing outside of work can be productive for the work itself later on, socializing in the workplace can deter you from working and can ultimately be bad for the company. If you're always running around form office to office having fun and not working you're not doing your company a favor.
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The U.S Department of Labor and the Organization for Economic Co-operation and Development have reported that the average age of
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Mullineaux Corporation has a target capital structure of 65 percent common stock and 35 percent debt. Its cost of equity is 12.8
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WACC = 10.35%

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The weighted Average cost of Capital is the average cost of capital for the different sources of long-term capital available to a firm weighted according to the proportion that each source of finance bears to the total capital in the pool..  

After-tax cost of debt = (1- tax rate) × before tax cost of debt  

= (1-0.23)× 7.5% = 5.8%  

Type          Cost (%)       Weight         cost × weight

Equity          12.8              65%               8.32

Debt            5.8                 35%       <u>       2.03  </u>

Total                                                      10.3  

WACC = 10.35%

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