Bill and Warren have decided to acquire CellU in order to expand CompU's product line. They...
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Bill and Warren have decided to acquire CellU in order to expand CompU's product line. They are trying to decide how to finance the acquisition, and are currently looking at financing it by issuing bonds. They want to examine their existing bond issues to get an overall picture of their debt financing, and since they will have to pay off CellU's bonds after the acquisition, they are reviewing those also. Help Bill and Warren by answering the following questions. 1. They are thinking about issuing 11 percent coupon bonds that will mature in 15 years. Market interest rates are 13 percent. What could they sell each of the bonds for? 2. CompU issued 15 percent coupon bonds that have five years left until maturity. Market interest rates have fallen to 12 percent. What is the current value of each of these bonds? 3. CellU issued 18 percent junk bonds 3 years ago. The bonds have 17 years remaining until they mature. The current market rate of interest for this type of speculative debt remains at 18 percent. What is the current value of these bonds? 4. CompU issued two hundred $1,000 par value bonds on September 30, 2007. The bonds mature in 20 years and have an 8 percent semiannual coupon. a. What is the value of the bond on September 30, 2008 if the market interest rate on comparable debt is 8 percent? b. What is the value of the bond on September 30, 2008 if the market interest on comparable debt is 12 percent? c. What is the value of the bond on September 30, 2008 if the market interest on comparable debt is 5 percent? 5. Cellu just issued an 18-year, 12 percent coupon bond for $1,165.47. What is the current yield on this bond? What is the yield to maturity? 6. CompU is also thinking about issuing five hundred 20-year, zero-coupon bonds. The market interest rate is 12 percent. What is the value of each of these bonds? Bill and Warren have decided to acquire CellU in order to expand CompU's product line. They are trying to decide how to finance the acquisition, and are currently looking at financing it by issuing bonds. They want to examine their existing bond issues to get an overall picture of their debt financing, and since they will have to pay off CellU's bonds after the acquisition, they are reviewing those also. Help Bill and Warren by answering the following questions. 1. They are thinking about issuing 11 percent coupon bonds that will mature in 15 years. Market interest rates are 13 percent. What could they sell each of the bonds for? 2. CompU issued 15 percent coupon bonds that have five years left until maturity. Market interest rates have fallen to 12 percent. What is the current value of each of these bonds? 3. CellU issued 18 percent junk bonds 3 years ago. The bonds have 17 years remaining until they mature. The current market rate of interest for this type of speculative debt remains at 18 percent. What is the current value of these bonds? 4. CompU issued two hundred $1,000 par value bonds on September 30, 2007. The bonds mature in 20 years and have an 8 percent semiannual coupon. a. What is the value of the bond on September 30, 2008 if the market interest rate on comparable debt is 8 percent? b. What is the value of the bond on September 30, 2008 if the market interest on comparable debt is 12 percent? c. What is the value of the bond on September 30, 2008 if the market interest on comparable debt is 5 percent? 5. Cellu just issued an 18-year, 12 percent coupon bond for $1,165.47. What is the current yield on this bond? What is the yield to maturity? 6. CompU is also thinking about issuing five hundred 20-year, zero-coupon bonds. The market interest rate is 12 percent. What is the value of each of these bonds?
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Answer rating: 100% (QA)
ANSWER 1To calculate the selling price of the 11 percent coupon bonds that will mature in 15 years we need to use the present value formula PV PMT 1 1 1 rn r where PV is the present value of the bond ... View the full answer
Related Book For
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
Posted Date:
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