| Technology Services | VCU Security Treasury AAA Corporate BBB Corporate B Corporate Consider the following yields to maturity on various one-year, zero-coupon securities: 0.60% The credit spread of the single B corporate bond is closest to 1.10% 1.40% virginiacommonwealth.instructure.com 0.80% 1.60% Yield (%) 5.0 5.2 5.8 6.6 Video Quiz Chapter 6: FIRE 311 Sec Review Video Lecture Part 6.5
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- Security: Treasury AAA Corporate BBB Corporate B Corporate Yield (%): 5.2 5.4 6.4 6.9 The above table shows the yields to maturity on a number of one-year, zero-coupon securities. What is the price per $100 of the face value of a one-year, zero-coupon corporate bond with a BBB rating? A. $93.98 B. $75.19 C. $112.78 D. $131.58Quantitative Problem: Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, D1, to be $2.20 and it expects dividends to grow at a constant rate g = 5.9%. The firm's current common stock price, P0, is $29.00. The current risk-free rate, rRF, = 4.7%; the market risk premium, RPM, = 6%, and the firm's stock has a current beta, b, = 1.2. Assume that the firm's cost of debt, rd, is 8.69%. The firm uses a 4% risk premium when arriving at a ballpark estimate of its cost of equity using the bond-yield-plus-risk-premium approach. What is the firm's cost of equity using each of these three approaches? Round your answers to two decimal places. CAPM cost of equity: % Bond yield plus risk premium: % DCF cost of equity: % What is your best estimate of the firm's cost of equity?-Select- (The best estimate is the highest percentage of the three…a. What is the price (expressed as a percentage of the face value) of a one-year, zero-coupon corporate bond with a AAA rating?b. What is the credit spread on AAA-rated corporate bonds?c. What is the credit spread on B-rated corporate bonds?d. How does the credit spread change with the bond rating? Why? Security Yield Treasury 3.120AAA corporate 3.874BBB corporate 4.521B corporate 5.328
- Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, D1, to be $2.40 and it expects dividends to grow at a constant rate gL = 5.8%. The firm's current common stock price, P0, is $21.00. The current risk-free rate, rRF, = 4.8%; the market risk premium, RPM, = 6.1%, and the firm's stock has a current beta, b, = 1.2. Assume that the firm's cost of debt, rd, is 10.57%. The firm uses a 4.1% risk premium when arriving at a ballpark estimate of its cost of equity using the bond-yield-plus-risk-premium approach. What is the firm's cost of equity using each of these three approaches? Do not round intermediate calculations. Round your answers to two decimal places. CAPM cost of equity: % Bond-Yield-Plus-Risk-Premium: % DCF cost of equity: % If you are equally confident of all three methods, then what is the best estimate of the firm’s cost of…Assume the risk-free rate on long-term Treasury bonds is 6.04%. Assume also that the average annual return on the Winslow 5000 is 11% as the expected return on the market. Use the SML equation (i.e., CAPM) to calculate the two companies' required returns. Bartman Industries Reynolds Inc. Year Stock Price Dividend Holding period return Stock Price Dividend Holding period return 2020 $17.25 $1.15 $48.75 $3.00 2019 14.75 1.06 52.30 2.90 2018 16.50 1.00 48.75 2.75 2017 10.75 0.95 57.25 2.50 2016 11.37 0.90 60.00 2.25 2015 7.62 55.75Calculate Cost of Common Equity using CAPM (Capital Asset Pricing Model), DCF (Discounted Cash Flow Model) and Bond Yield Risk Premium CAPM data: VEC’s beta = 1.2 The yield on T-bonds = 3% Market risk premium = 7% DCF data: Stock price = $27.08 Last year’s dividend (D0) = $2.10 Expected dividend growth rate = 4% Bond-yield-plus-risk-premium data: Risk premium = 5.5% Amount of retained earnings available = $80,000 Floatation cost for newly issued shares = 7%
- Give typing answer with explanation and conclusion Consider the following two banks: • Bank A has assets composed solely of a 10-year, 9%, zero-coupon bond a maturity value of $1,800,000 (calculate its current value). It is financed by a 12-year, 8% coupon, $1,000,000 face value bond to yield 9.5% return. • Bank B has assets composed solely of a 9-year, 10% coupon, $1.7 million bond with a 11% yield to maturity. It is financed with a 8%, 16-year, zero-coupon bond with a maturity value of $3,100,000. All securities, accept the zero-coupon bond, pay interest semi-annually and the zero-coupon bond has semi-annual compounding period. Suppose that interest rates are expected to rise by 100bps Show me the change in the values of the asset and the liabilities for each bank.Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, D1, to be $2.10 and it expects dividends to grow at a constant rate g = 4.4%. The firm's current common stock price, P0, is $25.00. The current risk-free rate, rRF, = 4.7%; the market risk premium, RPM, = 6.0%, and the firm's stock has a current beta, b, = 1.15. Assume that the firm's cost of debt, rd, is 11.00%. The firm uses a 3.0% risk premium when arriving at a ballpark estimate of its cost of equity using the bond-yield-plus-risk-premium approach. What is the firm's cost of equity using each of these three approaches? Round your answers to two decimal places. CAPM cost of equity: % Bond yield plus risk premium: % DCF cost of equity: % What is your best estimate of the firm's cost of equity?You are analyzing the cost of debt for a firmYou know that the firm's 14-year maturity7.8 percent coupon bonds are selling at a price of $1,052.38The bonds pay interest semiannually. If these bonds are the only debt outstanding for the firm, answer the following questions Only typed answer
- CALCULATE WACC BASED ON THE FOLLOWING FIGURES: Bonds $35,000,000 (35%) Preferred Stock $15,000,000 (15%) Common Equity $50,000,000 (50%) Total $100,000,000 Data to be used in the calculation of the cost of debt: Par value = $1,000, non-callable Market value = $1,085.59 Coupon interest = 6%, annual payments Remaining maturity = 20 years New bonds can be privately placed without any flotation costs Data to be used in the calculation of the cost of preferred stock: Par value = $100 Annual dividend = 7.5% of par Market value = $102 Flotation cost = 4% Data to be used in the calculation of the cost of common equity: CAPM data: VEC’s beta = 1.2 The yield on T-bonds = 3% Market risk premium = 7% DCF data: Stock price = $27.08 Last year’s dividend (D0) = $2.10 Expected dividend growth rate = 4% Bond-yield-plus-risk-premium data: Risk premium = 5.5% Amount of retained…IN EXCEL! Assume you would like to estimate ABC Company's debt cost. ABC's bond has a semi-annual 5.25 % coupon rate and a Par value of $1,000, with a market price of 86 percent of the Par. Assume a number of years to maturity of 12 years. Estimate the cost of debt for ABC Company. Assume the same number of years to maturity of Question 1. You buy a zero-coupon to reach your goal of having $1,000,000.00 when the zero-Coupon bond matures. The yield of this Zero-Coupon bond is 6.25% compounded semiannually, how much must you invest today to achieve your goal? The face value of each zero-coupon bond is $10,000. IN EXCELa. What is the price (expressed as a percentage of the face value) of a 1-year, zero-coupon corporate bond with a AAA rating and a face value of $1,000? b. What is the credit spread on AAA-rated corporate bonds? c. What is the credit spread on B-rated corporate bonds? d. How does the credit spread change with the bond rating? Why? Note: Assume annual compounding.
