Question 8(Mango Inc. is going to issue a 30-year bond with a coupon rate of 5,00% (with 2coupon payments per year) and a face value of $1 000. Mango Inc. believes it can berated A by Standard and Poor's. However, because of recent financial difficulties atthe company, Standard and Poor's is warning that it may downgrade Mango Inc.Industries bonds to BBB. Yields on A-rated, long-term bonds are currently 6,00%(quoted as an annual percentage rate (APR)), and yields on BBB-rated bonds are9,20% (quoted as APR). What is the % change in the price of the bond if it isdowngraded?Instructions: Round the result to two decimal places and do not put the "%" symbolin the answer box. For example if you get a result of -7.5432% then write -7.54 inthe answer box below.

To calculate the change in the price of the bond due to the downgrade.First, we need to find the…

Answered: Question 8( Mango Inc. is going to…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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1. Alpha Co. is planning to issue bonds semiannuallywith a coupon rate of 8%, issued and 30 years to maturity. Assume the nominal interest rate on bonds is 7%. The par value of $1,000. What is the value of the coupon for the bondholder will receive? 2. A lessee and lessor face the same tax rate interest rate. Also, there are no transaction costs. The net advantage to leasing for the lessor is $450. Under these conditions, what is the net advantage to leasing be for the lessee under this proposed lease payment? (I answered $450 but it was wrong)
9.27 Debt Valuation: Zero-Coupon Debentures. At the beginning of the year, Park Inc. issued $150 million (maturity value) of 10-year, zero-coupon debentures, at a time when the yield rate was four percent annually. The Park, Inc. bonds would be subject to semiannual compounding. Required1. Calculate the proceeds to be received by Park Inc. when the bonds are sold. 2. Calculate the cost to repurchase and retire the bonds after five years assuming that the market yield rate at that time is five percent annually. Is the early retirement of debt a good decision in this set of circumstances? What factors did you consider in reaching your decision? 3. Under what circumstances would a company consider issuing zero-coupon debentures instead of regular interest-bearing debentures?
7. Imperial Oil decides to raise $500 million by issuing 7-year semi-annual bonds that pay interest of 3.5% per year. If the face value is $1,000 and the current yield is 4%, what is the market price of the bond? A. $924.15 B. $969.73 C. $987.13 D. $992.35 E. $1,032.76
Cost of debt with fees. Kenny Enterprises will issue a bond with a par value of $1,000, a maturity of twenty years, and a coupon rate of 8.8% with semiannual payments, and will use an investment bank that charges $30 per bond for its services. What is the cost of debt for Kenny Enterprises at the following market prices? a. $940.59 b. $1,004.38 c. $1,103.95 d. $1,162.45
Cost of debt. Kenny Enterprises has just issued a bond with a par value of $1,000, a maturity of twenty years, and a coupon rate of 10.7% with semiannual payments. What is the cost of debt for Kenny Enterprises if the bond sells at the following prices? What do you notice about the price and the cost of debt? a. $967.34 b. $1,000.00 c. $1,045.83 d. $1, 189.10% (Round to two decimal places.)
Cost of debt. Kenny Enterprises has just issued a bond with a par value of $1,000, a maturity of twenty years, and a coupon rate of 10.5% with semiannual payments. What is the cost of debt for Kenny Enterprises if the bond sells at the following prices? What do you notice about the price and the cost of debt? a. b. $1,000.00 c. $1,036.72 d. $1,161.82 $977.21
K (Related to Checkpoint 9.2 and Checkpoint 9.3) (Bond valuation relationships) The 13-year, $1,000 par value bonds of Waco Industries pay 7 percent interest annually. The market price of the bond is $855, and the market's required yield to maturity on a comparable-risk bond is 10 percent. a. Compute the bond's yield to maturity. b. Determine the value of the bond to you given the market's required yield to maturity on a comparable-risk bond. c. Should you purchase the bond? a. What is your yield to maturity on the Waco bonds given the current market price of the bonds? % (Round to two decimal places.)
A 10-year bond of a firm in severe financial distress has a coupon rate of 13% and sells for $880. The firm is currently renegotiating the debt, and it appears that the lenders will allow the firm to reduce coupon payments on the bond to one-half the originally contracted amount. The firm can handle these lower payments. What is (a) the stated and (b ch. 14 - Problems yield to maturity of the bonds? The bond makes its coupon payments annually. (Do not round intermediate calculations. Round your answers to 3 decimal places.)Stated yield to maturity____Expected yield to maturity____
Q. A company's bond has a coupon rate of 9.00% and has 19 years remaining until maturity. The company's bonds pay interest semi-annually. Due to a cash flow problem, the company will be unable to pay the interest payments for periods 8, 9, and 10. These missed payments will be repaid in one lump sum when the bond matures, without interest. If the Yield to Maturity (YTM) on similar bonds is 8%, what is the intrinsic value of this bond?
Doha plc has some surplus funds that it wishes to invest in bonds. The company requires a return of 15% on bonds, and the finance director has asked you to analyse whether it should invest in either of the following bonds that are available:Company A: Expected profit 12% bonds, redeemable at par at the end of two more years, with a current market value of QAR 95 per QAR 100 bondCompany B: Expected profit 8% bonds, redeemable at QAR110 at the end of two more years, with a current market value of QAR 95 per QAR 100 bonda. Calculate the expected value (price) of the two bonds and evaluate if either offer an appropriate return for Doha Plc.b. Critically evaluate what would be the impact on the price of bonds if Doha Plc reduces their required return.c. Critically evaluate and discuss the factors that should be considered by the directors of a company when choosing whether to use debt or equity finance for a new projectd. Recently one director has attended a finance conference, on their…
(Related to Checkpoint 9.2) (Yield to maturity) The Saleemi Corporation's $1,000 bonds pay 7 percent interest annually and have 13 years until maturity. You can purchase the bond for $1,105. a. What is the yield to maturity on this bond? b. Should you purchase the bond if the yield to maturity on a comparable-risk bond is 7 percent? a. The yield to maturity on the Saleemi bonds is nothing%. (Round to two decimal places.)
Andrew Industries is contemplating issuing a 30-year bond with a coupon rate of 9.03% (annual coupon payments) and a face value of $1,000. Andrew believes it can get a rating of A from Standard and Poor's. However, due to recent financial difficulties at the company, Standard and Poor's is warning that it may downgrade Andrew Industries bonds to BBB. Yields on A-rated, long-term bonds are currently 8.53%, and yields on BBB-rated bonds are 8.93%. a. What is the price of the bond if Andrew maintains the A rating for the bond issue? b. What will the price of the bond be if it is downgraded?

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