7. Allowance, a paycheck, gifts, and gains from an investment are examples of

It is now January 1, 2013, and you are considering the purchase of an outstanding bond that was issued on January 1, 2011. It ha

frutty [35]

Answer:

a. Assuming you hold the bonds until they mature, the rate of return you would probably earn is the YTM of 5.89%.

b. Assuming you hold the bonds until they are called, the rate of return you would probably earn is the YTC of 5.65%.

Explanation:

This can be determined by calculating the YTM and YTC as follows:

a. Calculation of Yield to Maturity (YTM)

The bond's Yield to Maturity can be calculated using the following RATE function in Excel:

YTM = RATE(nper,pmt,-pv,fv) .............(1)

Where;

YTM = yield to maturity = ?

nper = number of periods = number of years to maturity = 30

pmt = annual coupon payment = annual coupon rate * Face value = 7% * $1,000 = $70 = 70

pv = present value = current bond price = $1,155 = 1155

fv = face value or par value of the bond = 1000

Substituting the values into equation (1), we have:

YTM = RATE(30,70,-1155,1000) ............ (2)

Inputting =RATE(30,70,-1155,1000) into excel (Note: as done in the attached excel file), the YTM is obtained as 5.89%.

Therefore, assuming you hold the bonds until they mature, the rate of return you would probably earn is the YTM of 5.89%.

b. Calculation of Yield to Call (YTC)

The bond's Yield to call can be calculated using the following RATE function

in Excel:

YTC = RATE(nper,pmt,-pv,fv) .....................(3)

Where;

YTM = yield to call = ?

nper = number of periods = number of years of call protection = 11

pmt = annual coupon payment = annual coupon rate * Face value = 7% * $1,000 = $70 = 70

pv = present value = current bond price = $1,155 = 1155

fv = future value of the bond or the amount at which the bond can be called = $1,085 = 1085

Substituting the values into equation (3), we have:

YTM = RATE(11,70,-1155,1085) ............ (4)

Inputting =RATE(11,70,-1155,1085) into excel (Note: as done in the attached excel file), the YTM is obtained as 5.65%.

Therefore, assuming you hold the bonds until they are called, the rate of return you would probably earn is the YTC of 5.65%.

Download xlsx

3 0

2 years ago

AJ's Markets is being liquidated. The mortgage holder is owed $830,000, the other secured creditors are owed $128,000, and the u

oksano4ka [1.4K]

Answer:

B. $.025

Explanation:

Calculation to determine How much will the unsecured creditors receive per each dollar they are owed

First step is to determine the Mortgage unsecured

Mortgage unsecured = $830,000 -$794,000

Mortgage unsecured= $36,000

Second step is to calculate the Funds available after expenses

Funds available after expenses = $467,000 - $330,000

Funds available after expenses = $137,000

Third step is to calculate the Funds available after secured claims

Funds available after secured claims = $137,000 - $128,000

Funds available after secured claims= $9,000

Fourth step is to calculate the Total unsecured claims

Total unsecured claims = $36,000 + $329,000 Total unsecured claims = $365,000

Now let determine Percent unsecured claims paid

Percent unsecured claims paid = $9,000 / $365,000

Percent unsecured claims paid= .025*100

Percent unsecured claims paid=2.5%

Therefore the amount of that the unsecured creditors receive per each dollar they are owed will be $.025

7 0

2 years ago

Brickhouse is expected to pay a dividend of $2.85 and $2.34 over the next two years, respectively. After that, the company is ex

irina1246 [14]

Answer:

The stock price is $31.14

Explanation:

The value of Brickhouse stock today is the present values of future cash flows from the stock discounted using the required rate of return of 10.7% as the discount rate as done below:

Years cash flows discount factor Present values

1 $2.85 1/(1+10.7%)^1=0.903342367 $2.57

2 $2.34 1/(1+10.7%)^2=0.816027432 $1.91

3 & beyond *$32.67 1/(1+10.7%)^2=0.816027432 $ 26.66

total present values= $31.14

* the year 3 and beyond represents the terminal value of the stock,which is computed using the formula below

=D2*(1+g)/r-g

D2 is the year dividend of $2.34

g is the dividend growth rate of 3.3%

r is the required rate of return which 10.7%

terminal value=$2.34*(1+3.3%)/(10.7%-3.3%)

=2.41722 /0.074 =$32.67

6 0

3 years ago

A farmer is considering the installation of a fuel storage system that will save $0.065 per gallon because the fuel can be purch

photoshop1234 [79]

Answer:

yes and because yes

Explanation:

5 0

2 years ago

Communication that builds and maintains favorable relationships by informing and persuading one or more audiences to view an org

notsponge [240]

Answer: Promotion

Explanation:

The promotion is one of the important business strategy that helps in spread the awareness among the customers or users about the various types of brands and products by an organization.

The main objective of a promotion is to communication with the consumers so that they can aware about the various types of new brands and the product in the market as it helps in increase the probability of the business.

According to the given question, the communication helps in maintaining the relationship with the customers and the audience in an organization that helps in accept the products positively. Therefore, promotion is the correct answer.

5 0

2 years ago