A1. (Bond valuation) A $1,000 face value bond has a remaining maturity of 10 years and a required return of 9%. The bond’s coupon rate is 7.4%. What is the fair value of this bond? Number of years (N) = 10, future value (FV) = 1000, interest rate (I/YR) = 9 0.074 * 1000 = 74 = PMT or annual payment, I then pressed CPT on my financial calculator to compute the price of the bond and then pressed PV or present value. The fair value of the bond is $897.32.
Using Cash Flow of $1000 to calculate present value,
Cash flow= $1000
PV factor = 1/(1+i)^n = 0.42241
PV = $1000*0.42241= 422.41
Using coupon rate to calculate present value of annuity
Cash flow= $1000 * 7.4/100 = $74
PV factor = (1/i)*(1 1/(1+i)^n) = 6.4176
So, PV = $74*6.4176 = 474.90
So the fair value of bond = 474.90+422.41 = $897.31
A10. (Dividend discount model) Assume RHM is expected to pay a total cash dividend of $5.60 next year and its dividends are expected to grow at a rate of 6% per year forever. Assuming annual dividend payments, what is the current market value of a share of RHM stock if the required return on RHM common stock is 10%?
Current market value = D1/(Required return – growth rate) = 5.60/(10%6%) = $140 A12. (Required return for a preferred stock) James River $3.38 preferred is selling for $45.25. The preferred dividends is now growing. What is the required return on James River preferred stock? Required Return = Dividend/Market Price
A14.(Stock Valuation) Suppose Toyota has nonmaturing (perpetual) preferred stock outstanding that pays a $1.00 quarterly dividend and has a required return of 12% APR (3% per quarterly). What is the stock worth? Perpetual Quarterly Preferred Dividend (D) = $1.00
Annual Dividend ($1.00 x 4.00) = $4.00
Annual Percentage Rate (APR) = 12%
Preferred Stock Value (P0) = (D / R)
Preferred Stock Value (P0) =...
...A3 (Coverage ratio) The firm in the two preceding problems also had $6 million of principal repayments during the latest 12 months. Its marginal tax rate is 40%. Calculate the debt service coverage ratio.
DebtService Coverage Ratio = (EBIT + 1/3 Rentals) / (Interest Expense + 1/3 Rentals + Principal Repayments / (1  T)) = ($30 + $15 / 3) / ($10 + $15 / 3 + $6 / (1  0.40)) = 1.40
A4 (WACC with rebalancing) Nathan’s Catering is a gourmet catering service located in...
...ProblemSets
Chapter 5
A1. (Bond valuation) A $1,000 face value bond has a remaining maturity of 10 years and a required return of 9%. The bond’s coupon rate is 7.4%. What is the fair value of this bond?
Calculating PV factor:
i= required return = 9% = 0.09
n= 10 years
Using Cash Flow of $1000 to calculate present value,
Cash flow= $1000
PV factor = 1/(1+i)^n = 0.42241
PV = $1000*0.42241= 422.41
Using Coupon Rate to calculate present value of...
...or $24,000 at the end of eight years. Assuming you could earn 11 percent annually, which alternative should you choose? If you could earn 12 percent annually, would you still choose the same alternative?
Answer: I found two answers for the same problems. One is bringing the present value to the future and the other is bringing the future value to the present. In each one of them, different solutions were proposed.
A. Present Value to the future
Option 1: $10,000 now with 11%...
...PROBLEMSET # 1
Instructions:
1) Open book, open notes limited to only class materials.
2) Unlimited time.
3) This must be reflective of your individual effort. GMU Honor Code applies.
4) The ProblemSet #1 (only the question solutions portion) is due at the end of the day on September 24th.
5) Show all work, as partial credit will be given for each question’s answer. Organize your work so it is easy to...
...Problem 83.
For each of the following situations, the present value concept should be applied:
1. Your wealthy aunt just established a trust fund for you that will accumulate to a total of $100,000 in 12 years. Interest on the trust fund is compounded annually at an 8% rate. How much is in your trust fund today?
2. On January 1, you will purchase a new car. The automobile dealer will allow you to make increasing annual December 31 payments over the following four...
...Content Area TextSet
Standard
The standard is for a 5th grade Social Studies class according to the Georgia Performance Standards.
SS5H6: The student will explain the reasons for America’s involvement in WW II.
a. Describe Germany’s aggression in Europe and Japan’s aggression in Asia.
b. Describe major events in the war in both Europe and the Pacific; include Pearl Harbor, Iwo Jima, DDay, VE and VJ Days, and the Holocaust.
c. Discuss President Truman’s...
...What is the present value of $150,000 to be received 8 years from today if the discount rate is 11 percent?
Question 1 options:
 A)  $65,088.97 
 B)  $71,147.07 
 C)  $74,141.41 
 D)  $79,806.18 
 E)  $83,291.06

Question 2 (2 points)
According to the Rule of 72, you can do which one of the following?
Question 2 options:
 A)  double your money in five years at 7.2 percent interest 
 B)  double your money in 7.2 years at 8 percent...
...
1. EP Enterprises has the following income statement. How much net operating profit after taxes (NOPAT) does the firm have?
Sales
$1,800.00
Costs
1,400.00
Depreciation
250.00
EBIT
$ 150.00
Interest expense
70.00
EBT
$ 80.00
Taxes (40%)
32.00
Net income
$ 48.00
a.
$81.23
b.
$85.50
c.
$90.00
EBIT...
1065 Words 
11 Pages
Share this Document
{"hostname":"studymode.com","essaysImgCdnUrl":"\/\/imagesstudy.netdnassl.com\/pi\/","useDefaultThumbs":true,"defaultThumbImgs":["\/\/stmstudy.netdnassl.com\/stm\/images\/placeholders\/default_paper_1.png","\/\/stmstudy.netdnassl.com\/stm\/images\/placeholders\/default_paper_2.png","\/\/stmstudy.netdnassl.com\/stm\/images\/placeholders\/default_paper_3.png","\/\/stmstudy.netdnassl.com\/stm\/images\/placeholders\/default_paper_4.png","\/\/stmstudy.netdnassl.com\/stm\/images\/placeholders\/default_paper_5.png"],"thumb_default_size":"160x220","thumb_ac_size":"80x110","isPayOrJoin":false,"essayUpload":false,"site_id":1,"autoComplete":false,"isPremiumCountry":false,"userCountryCode":"US","logPixelPath":"\/\/www.smhpix.com\/pixel.gif","tracking_url":"\/\/www.smhpix.com\/pixel.gif","cookies":{"unlimitedBanner":"off"},"essay":{"essayId":36620791,"categoryName":"Industries","categoryParentId":"3","currentPage":1,"format":"text","pageMeta":{"text":{"startPage":1,"endPage":2,"pageRange":"12","totalPages":2}},"access":"premium","title":"Text Problem Sets","additionalIds":[17,52,51,29],"additional":["Literature","Business \u0026 Economy\/Organizations","Business \u0026 Economy\/Accounting","Transportation"],"loadedPages":{"html":[],"text":[1,2]}},"user":null,"canonicalUrl":"http:\/\/www.studymode.com\/essays\/TextProblemSets1282233.html","pagesPerLoad":50,"userType":"member_guest","ct":10,"ndocs":"1,500,000","pdocs":"6,000","cc":"10_PERCENT_1MO_AND_6MO","signUpUrl":"https:\/\/www.studymode.com\/signup\/","joinUrl":"https:\/\/www.studymode.com\/join","payPlanUrl":"\/checkout\/pay","upgradeUrl":"\/checkout\/upgrade","freeTrialUrl":"https:\/\/www.studymode.com\/signup\/?redirectUrl=https%3A%2F%2Fwww.studymode.com%2Fcheckout%2Fpay%2Ffreetrial\u0026bypassPaymentPage=1","showModal":"getaccess","showModalUrl":"https:\/\/www.studymode.com\/signup\/?redirectUrl=https%3A%2F%2Fwww.studymode.com%2Fjoin","joinFreeUrl":"\/essays\/?newuser=1","siteId":1,"facebook":{"clientId":"306058689489023","version":"v2.8","language":"en_US"},"analytics":{"googleId":"UA327183211"}}