price per bond in Problem 1 if interest payments were madeo bistysemiannually?ky 3. Superior Cement Company has an 8 percent preferred stock issue outstanding, with eachshare having a $100 face value. Currently, the yield is 10 percent. What is the market priceper share? If interest rates in general should rise so that the required return becomes$10 12 percent, what will happen to the market price per share?01The stock of the Health C

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Description: price per bond in Problem 1 if interest payments were madeo bistysemiannually?ky 3. Superior Cement Company has an 8 percent preferred stock issue outstanding, with eachshare having a $100 face value. Currently, the yield is 10 percent. What is the

Preferred carry the fixed payment of dividends that are to be paid regularly on face value but the…

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Superior Cement Company has an 8 percent preferred stock issue ou share having a $100 face value. Currently, the yield is 10 percent. Wh per share? If interest rates in general should rise so that the requ 12 percent, what will happen to the market price per share? TL

Superior Cement Company has an 8 percent preferred stock issue ou share having a $100 face value. Currently, the yield is 10 percent. Wh per share? If interest rates in general should rise so that the requ 12 percent, what will happen to the market price per share? TL

Financial Accounting: The Impact on Decision Makers

10th Edition

ISBN:9781305654174

Author:Gary A. Porter, Curtis L. Norton

Publisher:Gary A. Porter, Curtis L. Norton

Chapter11: Stockholders' Equity

Section: Chapter Questions

Problem 11.2AP

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Bond Valuation and Changes in Maturity and Required Returns Suppose Hillard Manufacturing sold an issue of bonds with a 10-year maturity, a 1,000 par value, a 10% coupon rate, and semiannual interest payments. a. Two years after the bonds were issued, the going rate of interest on bonds such as these fell to 6%. At what price would the bonds sell? b. Suppose that 2 years after the initial offering, the going interest rate had risen to 12%. At what price would the bonds sell? c. Suppose that 2 years after the issue date (as in Part a) interest rates fell to 6%. Suppose further that the interest rate remained at 6% for the next 8 years. What would happen to the price of the bonds over time?
Start with the partial model in the file Ch20 P08 Build a Model.xlsx on the textbooks Web site. Maggies Magazines (MM) has straight nonconvertible bonds that currently yield 9%. MMs stock sells for 22 per share, has an expected constant growth rate of 6%, and has a dividend yield of 4%. MM plans on issuing convertible bonds that will have a 1,000 par value, a coupon rate of 8%, a 20-year maturity, and a conversion ratio of 32 (i.e., each bond could be convertible into 32 shares of stock). Coupon payments will be made annually. The bonds will be noncallable for 5 years, after which they will be callable at a price of 1,090; this call price would decline by 6 per year in Year 6 and each year thereafter. For simplicity, assume that the bonds may be called or converted only at the end of a year, immediately after the coupon and dividend payments. Management will call the bonds when their conversion value exceeds 25% of their par value (not their call price). a. For each year, calculate (1) the anticipated stock price, (2) the anticipated conversion value, (3) the anticipated straight-bond price, and (4) the cash flow to the investor assuming conversion occurs. At what year do you expect the bonds will be forced into conversion with a call? What is the bonds value in conversion when it is converted at this time? What is the cash flow to the bondholder when it is converted at this time? (Hint: The cash flow includes the conversion value and the coupon payment, because the conversion occurs immediately after the coupon is paid.) b. What is the expected rate of return (i.e., the before-tax component cost) on the proposed convertible issue? c. Assume that the convertible bondholders require a 9% rate of return. If the coupon rate remains unchanged, then what conversion ratio will give a bond price of 1,000?
Bond Yields and Rates of Return A 10-year, 12% semiannual coupon bond with a par value of 1,000 may be called in 4 years at a call price of 1,060. The bond sells for 1,100. (Assume that the bond has just been issued.) a. What is the bonds yield to maturity? b. What is the bonds current yield? c. What is the bonds capital gain or loss yield? d. What is the bonds yield to call?
Yield to Maturity and Yield to Call Arnot International’s bonds have a current market price of $1,200. The bonds have an 11% annual coupon payment, a $1,000 face value, and 10 years left until maturity. The bonds may be called in 5 years at 109% of face value (call price = $1,090). What is the yield to maturity? What is the yield to call if they are called in 5 years? Which yield might investors expect to earn on these bonds, and why? The bond’s indenture indicates that the call provision gives the firm the right to call them at the end of each year beginning in Year 5. In Year 5, they may be called at 109% of face value, but in each of the next 4 years the call percentage will decline by 1 percentage point. Thus, in Year 6 they may be called at 108% of face value, in Year 7 they may be called at 107% of face value, and so on. If the yield curve is horizontal and interest rates remain at their current level, when is the latest that investors might expect the firm to call the bonds?
A $1,000 face value, 6.4% coupon bond pays interest semi-annually and matures in ten years. It has a yield-to-maturity of 7.1325%. The bond's price is closest to $920 $1,203 $1,061 $948 2. Pilgrim Corp. stock currently sells for $25 per share? The annual dividend payment is $1.00 per share and earnings per share are $3.00. What is the dividend payout ratio?
(a) A bond with 8 years to maturity has a nominal value of NOK 1,000,000. Coupon rates at 3% per year is paid annually. Annual market interest rate is 4%. What is the price of the bond today? (b) A company will issue shares for NOK 20 million. The share capital today is 5 mill. NOK (500,000 shares of NOK 10). The shares are now traded for NOK 50 per share, action. The issue will have a preferential right for old shareholders. The issue price is set at NOK 40 pr. action. What is the theoretical value per, subscription right? (c) The balance sheet for Rotor ASA is shown here in market values. That's 400i million outstanding shares.. The balance sheet (market values in NOK million). Cash 800 Equity 8,500 Fixed Asset 12,000 Debt 4,300 Total 12,800 Total 12,800 The company has announced a dividend of NOK 7.00 per. action. Ex-dividend day is tomorrow. Ignore taxes. What is the market value of Rotor after the dividend payment?
a. Currently bonds with a similar credit rating and maturity as the firm's outstanding debt are selling to yield 7.01 percent while the borrowing firm's corporate tax rate is 34 percent. b. Common stock for a firm that paid a $1.04 dividend last year. The dividends are expected to grow at a rate of 4.5 percent per year into the foreseeable future. The price of this stock is now $24.62. c. A bond that has a $1,000 par value and a coupon interest rate of 12.3 percent with interest paid semiannually. A new issue would sell for $1,147 per bond and mature in 20 years. The firm's tax rate is 34 percent. d. A preferred stock paying a dividend of 7.6 percent on a $96 par value. If a new issue is offered, the shares would sell for $83.45 per share. Question content area bottom Part 1 a. The after-tax cost of debt debt for the firm is____%
1. Aboitiz Equity Ventures issued a 7-year bond with a par value of ₱50,000 that pays a coupon of 8.47%. Coupon payments will be made annually. Investors required rate of return is composed of: real risk free rate of 1.5%; inflation premium of 4.5%; default risk premium of 2%; liquidity premium of 1.5%; and maturity risk premium of 2%. The required rate of return would be? 2. Using information in #1, the price of the bond would be closest to? 3. Using information in numbers 1, assume that the price of the bond is ₱45,000. The approximate yield to maturity would be?