Question: Please answer Q # 6 Suppose Galaxy Corp. has a bond issue [$1,000 face value) that pays a coupon of 4% per year. The bond

Please answer Q # 6

  1. Suppose Galaxy Corp. has a bond issue [$1,000 face value) that pays a coupon of 4% per year. The bond matures in 20 years. What is the value of the bond?

P = 40(13.59)+1000(0.456)=$999.6

  1. Now, suppose in the second year. (how many years to maturity?), interest rates on a similar type of bond increases to 5%. What is the value of the bond?

Po =40(12.085)+1000(0.396)=$879.4

  1. Next, after another year, with the market rate still at 5%, what will be the value of the bond?

P=40(11.69)+1000(0.416)=$883.6

  1. Calculate the one-year holding period return between 2 and 3?

  1. . Going back to the scenario in #1 above, suppose the interest rates fall to 3% the year after Galaxy bonds were issued. What would this do to the value (Po) of Galaxy's bonds?

P=40(14.324)+1000(0.57)=$1142.96

  1. Wabel Crop. Issues bonds with a 7% Coupon paying interest semiannually. If the going rate in the market is 6%, what is the value of this 15-year bond now?

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Q:

Discuss how drug laws are inequitably enforcement on minorities and also how we might reform the criminal justice system, in regard to drug laws?

Q:

46. Suppose Galaxy Corp. has a bond issue [$1,000 face value] that pays a coupon of 4% per year. The bond matures in 20 years. What is the value of the bond? P 47. Now, suppose in the second year,...

Q:

46. Suppose Galaxy Corp. has a bond issue [$1,000 face value that pays a coupon of % per year. The bond matures in 20 years. What is the value of the bond? Po 47. Now, suppose in the second year,...

Q:

answer #2 only 1. Suppose Galaxy Corp. has a bond issue [$1,000 face value) that pays a coupon of 4% per year. The bond matures in 20 years. What is the value of the bond? P = 2.Now, suppose in the...

Q:

1 - Filer Manufacturing has 7800000 shares of common stock outstanding. The current share price is $22.44, and the book value per share is $4.87. Filer Manufacturing also has two bond issues...

Q:

*For people solving dont just go through the free cash flow and find the irr and npv, all the times that you have done that you were wrong and it wasnt even what I was asking for. I need help finding...

Q:

1. Filer Manufacturing has 9,015,230 shares of common stock outstanding. The current share price is $61.8, and the book value per share is $4.59. Filer Manufacturing also has two bond issues...

Q:

Chapter 6 Practice problems 1. Suppose FINA Corp. has a bond issue [$1,000 face value] that pays a coupon of 7% per year. The bond matures in 20 years. What is the value of the bond? P0= 2. Now,...

Q:

*please dont round till the end* Filer Manufacturing has 7,738,209 shares of common stock outstanding. The current share price is $54.87, and the book value per share is $5.12. Filer Manufacturing...

Q:

1.Suppose Galaxy Corp. has a bond issue [S1,000 face value) that pays a coupon of % per year. The bond matures in 20 years. What is the value of the bond? Po- 2.Now, suppose in the second year, (how...

Q:

needing question 8 worked out, answer for no. 8 $1,241.95 8. Going back to scenario in Question \#1 above, suppose the interest rates fall to 5% the year after FINA bonds were issued. What would be...

Q:

At a factory, a noon whistle is sounding with a frequency of 500 Hz. As a car traveling at 85 km/h approaches the factory, the driver hears the whistle at frequency (i. After driving past the...

Q:

A machine shop makes two products. Each unit of the first product requires 3 hours on machine 1 and 2 hours on machine 2. Each unit of the second product requires 2 hours on machine 1 and 3 hours on...

Q:

12. Pam Flores is thinking about investing in some residential income-producing property, which she can purchase for $200,000. Pam can either pay cash for the full amount of the property or put up...

Q:

After completing your assessment and proposing your plan, your CEO wants to know how supply chain management can be used within your firm for the various high-profile projects that will be undertaken...

Q:

Why is television the strongest medium for COBA?

Q:

What is the primary role of advertising in IMC?

Q:

Create a corporate story for a company with which you are familiar.