ou are presented with two wallets with the following characteristics: * Wallet (A) Purchase of the HPL.Inc bond at a yield to maturity of 8% semi-annual capitalization, Face value $1000, 10-year maturity with a coupon of $30 per semester, the bond was sold after 4 years at $980, purchase of common shares at $67, resold after 4 years at a price of $83, the dividends received are D1=1; D2= 1.25; D3=2; D4=2.25 and purchase of a preferred stock at $38 it pays a dividend of 0.25 per quarter, it was sold at $34 after 4 years. * Wallet (B) Purchase of the DLM.Inc bond at a rate of return to maturity of 6% semi-annual capitalization, Par value $1000, maturity 4 years with a coupon of $40 per semester, the bond was kept until maturity, purchase of ordinary shares at $54, resold after 4 years at a price of $60, the first dividend received is D1=1.2$ with a growth rate g=5%, purchase of a preferred share at 16$ it pays a dividend of 1$ per semester, it was sold at 20$ after 4 years. The cash flow reinvestment rate is 10% compounded semi-annually, for both portfolios. Dividends and coupons are taxed at the rate of 30%, the capital gains tax rate is 40%. - Calculate the return realized by the investor for each investment in portfolios (A)&(B). - If the two portfolios are equally weighted, which of the two portfolios is the most profitable?

College Accounting, Chapters 1-27

23rd Edition

ISBN:9781337794756

Author:HEINTZ, James A.

Publisher:HEINTZ, James A.

Chapter23: Statement Of Cash Flows

Section: Chapter Questions

Problem 1CP: CHALLENGE PROBLEM The long-term liabilities section of Guyton Enterprises follows. The bonds...

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Exercise 3 (it's two questions)
You are presented with two wallets with the following characteristics:
* Wallet (A)
Purchase of the HPL.Inc bond at a yield to maturity of 8% semi-annual capitalization, Face value $1000, 10-year maturity with a coupon of $30 per semester, the bond was sold after 4 years at $980, purchase of common shares at $67, resold after 4 years at a price of $83, the dividends received are D1=1; D2= 1.25; D3=2; D4=2.25 and purchase of a preferred stock at $38 it pays a dividend of 0.25 per quarter, it was sold at $34 after 4 years.
* Wallet (B)
Purchase of the DLM.Inc bond at a rate of return to maturity of 6% semi-annual capitalization, Par value $1000, maturity 4 years with a coupon of $40 per semester, the bond was kept until maturity, purchase of ordinary shares at $54, resold after 4 years at a price of $60, the first dividend received is D1=1.2$ with a growth rate g=5%, purchase of a preferred share at 16$ it pays a dividend of 1$ per semester, it was sold at 20$ after 4 years. The cash flow reinvestment rate is 10% compounded semi-annually, for both portfolios. Dividends and coupons are taxed at the rate of 30%, the capital gains tax rate is 40%.
- Calculate the return realized by the investor for each
investment in portfolios (A)&(B).
- If the two portfolios are equally weighted, which of the two
portfolios is the most profitable?

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