The target capital structure of the company XYZ is: 30% Debt 5% Preferred Stock 65% Equity...

     

Transcribed Image Text:

The target capital structure of the company XYZ is: 30% Debt 5% Preferred Stock 65% Equity The followings are the costs of each component: rd=6%; rps = 5.8%; rs = 12%. The tax rate is: T=40%; What is the WACC of XYZ? Assume inflation is expected to be 3% next year, 5% the following year, and 6% thereafter. In addition, the real interest rate (r) is 4%, and given that the equation of the maturity risk premium is: MRP,=0.6% (t-1) a. Calculate the IP of 1 year, 2 years, and 10 years. b. Find the maturity risk premium (MRP) of 1 year, 2 years, and 10 years. c. Find the appropriate nominal rates of 1 year, 2 years, and 10 years. Consider a five-year bond with a par value of $2,000 and a 8% coupon rate. Interest is paid annually. Calculate the bond price in the following cases a. Similar bonds in the market have a discount rate or (YTM) of 4%. b. Similar bonds in the market have a discount rate or (YTM) of 12%. Consider the risk-free rate at 3%, the expected inflation is 1,5% for the next 2 years. Currently, a 2-year Treasury security is yielding 6,2%. What is the maturity risk premium for the 2-year security? XYZ enterprises' bonds currently sell for 1 050$. They have 6-year maturity, an annual coupon of 75$ and a par value of 1 000$. What is their current vield? The target capital structure of the company XYZ is: 30% Debt 5% Preferred Stock 65% Equity The followings are the costs of each component: rd=6%; rps = 5.8%; rs = 12%. The tax rate is: T=40%; What is the WACC of XYZ? Assume inflation is expected to be 3% next year, 5% the following year, and 6% thereafter. In addition, the real interest rate (r) is 4%, and given that the equation of the maturity risk premium is: MRP,=0.6% (t-1) a. Calculate the IP of 1 year, 2 years, and 10 years. b. Find the maturity risk premium (MRP) of 1 year, 2 years, and 10 years. c. Find the appropriate nominal rates of 1 year, 2 years, and 10 years. Consider a five-year bond with a par value of $2,000 and a 8% coupon rate. Interest is paid annually. Calculate the bond price in the following cases a. Similar bonds in the market have a discount rate or (YTM) of 4%. b. Similar bonds in the market have a discount rate or (YTM) of 12%. Consider the risk-free rate at 3%, the expected inflation is 1,5% for the next 2 years. Currently, a 2-year Treasury security is yielding 6,2%. What is the maturity risk premium for the 2-year security? XYZ enterprises' bonds currently sell for 1 050$. They have 6-year maturity, an annual coupon of 75$ and a par value of 1 000$. What is their current vield?

Answer rating: 100% (QA)

a To calculate the IP of 1 year 2 years and 10 years we need to use the formula IP 1in 1 where i is ... View the full answer