Practice Problems on Finance

1. To begin, assume that it is now January 1, 1993, and that each bond in Table 1 matures on December 31 of the year listed. Further, assumes that each bond has $1,000 par value, each had a 30-year maturity when it was issued, and the bonds currently have a 10 percent required nominal rate or return.

A bond with an annual coupon of $70 and originally sold at par for $1,000. The current market interest rate (yield to maturity) is 8%. This bond will sell at _______. Assuming no change in market interest rates, the bond will present the holder with capital ________ as it matures.

concluded that the growth rate earnings per share and dividends will be 7% per year

Assuming the market interest rate on the issue date is 7%, the bonds will issue at $200,000. Record the bond issue on January 1, 2012, and the first two semi-annual interest payments on June 30, 2012, and December 31, 2012.

Ellesmere also has a bond issue outstanding, which is maturing in 25 years, has a face value of

Answer: The Coupon Rate is a generally fixed and is known as the stated rate of a bond that determines the periodic interest payments. As stated in the textbook, the annual coupon dividen by the face value is called the coupon rate of the bond. The YTM rate of return anticipated on the bond if it is held until the maturity Date. YTM is considered a long-term bond yield expressed as an annual rate.

8. (TCO D) Garvin Enterprises’ bonds currently sell for $1,150. They have a six-year maturity, an annual coupon of $85, and a par value of $1,000. What is their current yield? (Points :

The coupon rate is the annual coupon divided by the face value of a bond. This differs from YTM because this shows us the percent rate that the coupon will have. It also is a more fixed rate, unlike the YTM, which increases the bond’s value. The Yield to Maturity Rate is the rate required on a bond. This helps to determine the value of a bond at a particular point in time.

The company should set the coupon rate on its new bonds equal to the required returns. And the rate to be is 6.90

Your required rate of return is 9 percent. Ignoring taxes, what is the value of one share of this stock today?

8-19 Value a Constant Growth Stock Financial analysts forecast Safeco Corp.’s (SAF) growth rate for the future to be 10 percent. Safeco’s recent dividend was $1.20. What is the value of Safeco stock when the required return is 12 percent?

Most rapidly growing companies have positive free cash flows because cash flows from existing operations generally exceed fixed asset purchases and changes to net working capital.

The financial crisis starting in 2008 and the following recession hit hard the US auto sector. Traditional car makers had to realise that substantial changes were needed in order to maintain their strong position in the

3. A european corporation has issued bonds with a par value of Sfr 1,000 and an annual coupon of 5 percent. The last coupon on these bonds was paid four months ago, and their current clean price is 90 percent.

The characteristics of the global motor vehicle industry are a boom in certain places and a bust in others all due to economic conditions in different nations. Four years after tow of Detroit Michigan’s big three went into bankruptcy American car makers are going “full throttle” with sales in August hitting an annual rate that if substantiated can take them back over 16 million and that is a rate that was last hit before the economic crisis and 80% higher than 2009 when GM and Chrysler went into bankruptcy. The opposite is happening in Europe being in its sixth year slump now and with a weak economy, high petroleum prices and an aging