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- Question 3 A 7% annual coupon bond (face value $1,000), with three years left till maturity is selling for $986.90. Zero-coupon bonds of 1, 2, 3 years maturity (all with face value of $1,000) sell for $950, $900, $820, respectively. Is this coupon bond properly priced? If not, show an arbitrage transaction to profit $2000 (today) from the mispricing.Debt: 6.4% coupon bonds outstanding, $1000 par value, 15 years to maturity selling for $1,005, semi-annual payments. • Common stock: Selling for $83 per share; beta is 1.07. The last paid dividend was $5.42 and dividends are expected to grow at a rate of 2.5% forever. If the firm uses the own-bond-yield-plus-risk-premium method, the risk premium is estimated to be 2.7%. • Market: 5% market risk premium and 3.5% risk-free rate. • Tax rate = 35%. Part 1: Compute the cost of debt Part 2: Compute the cost of equity (use all 3 methods and take an average) Part 3: Compute the WACC. Assume that the weight on debt is 25% , the weight on preferred stock is 10% , and the weight on equity is 65% . The cost of preferred stock is 7.7%. The WACC is ?INV3 1c If the liquidity preference theory is correct and you believe that the liquidity premium is 1 percent, what is the market expectation of the price that bond #4 will sell for next year? Bond # 1 2 3 4 1 - year strip bond 2- year strip bond 2-year 6% coupon bond 2-year 7% coupon bond Purchase Price for the bond) 950 907.03 1,009.23 1,027.69 Year 1 cash flow 1000 0 60 70 Year 2 cash flow 0 1000 1060 1070 Yield to Maturity 5% 5% 5.50% 5.50%
- QUESTION 3 Model Inc. has semiannual bonds in the market. 8-year semiannual bond which pays10%coupon rate sells at$1,100. Calculate the yield to maturity on these bonds.5%10%8.27\% 4.13\%INV3 P1c Bond # 1 2 3 4 1 - year strip bond 2- year strip bond 2-year 6% coupon bond 2-year 7% coupon bond Purchase Price for the bond) 950 ? ? ? Year 1 cash flow 1000 0 60 70 Year 2 cash flow 0 1000 1060 1070 Yield to Maturity ? ? 5.50% ? If the liquidity preference theory is correct and you believe that the liquidity premium is 1 percent, what is the market expectation of the price that bond #4 will sell for next year?H5. f. (1) What is the yield to maturity on a 10-year, 9% annual coupon, $1,000 par value bond that sells for $887.00? That sells for $1,134.20? What does the fact that a bond sells at a discount or at a premium tell you about the relationship between rd and the bond’s coupon rate? solve in Excel Show proper step by step calculation and explain with details
- Q No 5: An 8 percent semiannual coupon bond matures in 5 years. The bond has a face value of $1,000 and a current yield of 8.21 percent. What are the bonds price and YTM? (Remember Call price is FV when bond is called by company and capital gain is calculated from = (YTM-Current Yield) calculate with formula not on excelA2 9c with info from b. May I please have it in formula version and not excel. thx:) Answer the following questions on bond valuation and duration. 9. Answer the following questions on bond valuation and duration. part b info: Face value of $1000 Five years to maturity Coupon rate of 11%, paid semi-annually Current price of $970 (Hint: The effective annual yield should be 12.1604%.) part b information Macaulay Duration=[(t1 X FV)(C)/(m X PV)(1+Y)T]+...+[(tn X FV)(C)/(mXPV)(1+YTM/m)mtn X (tnXFV)/(PV) (1+YTM/m)mtn.Macaulay Duration=[(t1 X FV)(C)/(m X PV)(1+Y)T]+...+[(tn X FV)(C)/(mXPV)(1+YTM/m)mtn X (tnXFV)/(PV) (1+YTM/m)mtn. T = Total time = 5; C = Coupon payment = 1,000 X (0.11/2) = $55; Y = Yield = 12.1604%/2 = 0.0607; N = No. of periods = 2; M = Maturity = 5 years; and Bond Price = $970. Macaulay Duration = [(0.5 X $1,000) ($55)/(5 X $670)(1+0.0607)2X0.5]+ [(1 X $1,000)…
