# Fin 534

Submitted By tidoconner
Words 792
Pages 4
(5–1)
Jackson Corporation’s bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a \$1,000 par value, and the coupon interest rate is 8%.
The bonds have a yield to maturity of 9%. What is the current market price of these bonds? 0 1 2 3 4 5 6 7 8 9 10 11 n=12
PV 80 80 80 80 80 80 80 80 80 80 80 80 Par Vaule= \$1,000.00

Coupon interest rate = 8%
Par value = \$1,000.00
Payment = Par value x coupon rate
Payment = \$1,000.00 x 0.08
Payment = \$80.00
Yield to maturity = 9%

The current market price of the Jackson Corporation's bonds are calculated as follows.
=PV(Rate, Nper, Payment, FV, Type)
=PV(9%,12,80,1000,0)
[pic]

The current market price of Jackson Corporation's bonds is \$928.39.

(5–3)
Heath Foods’s bonds have 7 years remaining to maturity. The bonds have a face value of \$1,000 and a yield to maturity of 8%. They pay interest annually and have a 9% coupon rate. What is their current yield?

0 1 2 3 4 5 6 n= 7
PV 90 90 90 90 90 90 90 Par Vaule= \$1,000.00

Coupon interest rate = 9%
Par value = \$1,000.00
Payment = Par value x coupon rate
Payment = \$1,000.00 x 0.09
Payment = \$90.00
Yield to maturity 8%

The current yield for Heath Food's bond is calculated as follows.
Current Yield=current payment/current price
Current Yield = \$90.00/Present Value
=PV(Rate, Nper, Payment, FV, Type)
=PV(8%,7,90,1000,0)
[pic]
Current Yield= \$90.00/\$1052.06
Current Yield= [pic]
Current Yield = 8.55%
Heath Food's bond current yield is 8.55%
(5–5)
A Treasury bond that matures in 10 years has a yield of 6%. A 10 year corporate bond has a yield of 9%. Assume that the liquidity premium on the corporate bond is 0.5%. What is the default risk premium on the corporate bond?
Corporate Bond:
I=9%
0 1 2 3 4 5 6 7 8...

### Similar Documents

#### Fin 534

...Monique Davis Strayer University – Online Campus FIN 534 Professor Ronal Lentz Monique Davis December 11, 2011 Company profile ITT Corporation (NYSE: ITT) is a global manufacturer and top 10 U.S. defense contractor specializing in electronics and fluids with annual revenues of about \$11 billion. As the largest supplier of pumps and systems in the transport and treatment of water, ITT offers its services to local governments in the U.S. and to the governments of developing nations. ITT also manufactures electronics such as night vision goggles and communication systems for the U.S. military. The future of ITT's fluids business depends on the global demand for clean water, especially in developing countries such as China and India. The growth in agriculture, increasingly wealthy populations, and widespread pollution in these developing countries have contributed to the rising demand for clean water. ITT is just one of many competitors working to bring clean water to developing nations. (WIKI Invest, 2011) provides that during the financial period about 58% of ITT's revenue is generated by its defense and information solutions business segment. As a result, a significant proportion of ITT's revenues come directly from U.S. government contracts. Since the September 11, 2001 terrorist attacks, U.S. defense spending has risen over 35%, reaching \$896.2 billion in 2010. ITT consists of three business segments: Defense......

Words: 2589 - Pages: 11

Free Essay

#### Fin 534

...1. Which of the following statements about dividend policies is CORRECT? 14.4 pages 567 - 568 e. The clientele effect suggests that companies should follow a stable dividend policy. 2. Which of the following statements is CORRECT? 14.2 pages 563 c. Stock repurchases can be used by a firm that wants to increase its debt ratio. 3. Which of the following statements is CORRECT? 14.13 pages 587 e. If a firm’s stock price is quite high relative to most stocks—say \$500 per share—then it can declare a stock split of say 10-for-1 so as to bring the price down to something close to \$50. Moreover, if the price is relatively low—say \$2 per share—then it can declare a ―reverse split‖ of say 1-for-25 so as to bring the price up to somewhere around \$50 per share. 4. Which of the following statements is CORRECT? 14.8 pages 572 - 573 a. If a firm follows the residual dividend policy, then a sudden increase in the number of profitable projects is likely to reduce the firm’s dividend payout. 5. DeAngelo Corp.'s projected net income is \$150.0 million, its target capital structure is 25% debt and 75% equity, and its target payout ratio is 65%. DeAngelo has more positive NPV projects than it can finance without issuing new stock, but its board of directors had decreed that it cannot issue any new shares in the foreseeable future. The CFO now wants to determine how the maximum capital budget would be affected by changes in capital structure policy and/or......

Words: 424 - Pages: 2

#### Fin 534 Assignment4

...Assignment 4: “Capital Structure Analysis” Submitted by Laurence Denebeyel Number and Name of Course (Financial Management) (FIN 534) Class Meeting time/Day (Friday 17:45 p.m. – 9:30 p.m.) Professor (Michael Keith Simms) Quarter (Summer 2011) Today’s Date (Friday August 26, 2011) Assignment 4: Capital Structure analysis Read Problem 28, chapter 16. Answer questions a) to d) and prepare a report (3_4 pages) on your conclusions; Show calculations. Info Systems Technology (IST) manufactures microprocessor chips for use in appliances and other applications. IST has no debt and 100 million shares outstanding. The correct price for these shares is either \$14.50 or \$12.50 per share. Investors view both possibilities as equally likely, so the shares currently trade for \$13.50. IST must raise \$500 million to build a new production facility. Because the firm would suffer a large loss of both customers and engineering talent in the event of financial distress, managers believe that if IST borrows the \$500 million, the present value of financial distress costs will exceed any tax benefits by \$20 million. At the same time, because investors believe that managers know the correct share price, IST faces a lemons problem if it attempts to raise the \$500 million by issuing equity. a) Suppose that if IST issues equity, the share price will remain \$13.50. To maximize the long term share price of the firm once its true value is known, would managers choose......

Words: 1019 - Pages: 5

#### Fin 534 Entire Course

...FIN 534 ENTIRE COURSE To purchase this visit here: http://www.activitymode.com/product/fin-534-entire-course/ Contact us at: SUPPORT@ACTIVITYMODE.COM FIN 534 ENTIRE COURSE FIN 534 Week 1 Chapter 1 Solution.doc FIN 534 Week 1 Chapter 2 Solution.doc FIN 534 Week 1 DQ 1.docx FIN 534 Week 1 DQ 2.docx FIN 534 Week 1 Quiz 1.doc FIN 534 Week 10 Chapter 17 Solution.doc FIN 534 Week 10 DQ 1.docx FIN 534 Week 10 DQ 2.docx FIN 534 Week 10 Quiz 9.doc FIN 534 Week 11 DQ 1.docx FIN 534 Week 11 DQ 2.docx FIN 534 Week 11 Quiz 10.doc FIN 534 Week 2 Chapter 3 Solution.doc FIN 534 Week 2 DQ 1.docx FIN 534 Week 2 DQ 2.docx FIN 534 Week 3 Chapter 4 Solution.doc FIN 534 Week 3 Chapter 5 Solution.doc FIN 534 Week 3 DQ 1.docx FIN 534 Week 3 DQ 2.docx FIN 534 Week 3 Quiz 2.doc FIN 534 Week 4 Chapter 6 Solution.doc FIN 534 Week 4 Chapter 7 Solution.doc FIN 534 Week 4 DQ 1.docx FIN 534 Week 4 DQ 2.docx FIN 534 Week 4 Quiz 3.doc FIN 534 Week 5 Chapter 8 Solution.doc FIN 534 Week 5 Chapter 9 Solution.doc FIN 534 Week 5 DQ 1.docx FIN 534 Week 5 Quiz 4.doc FIN 534 Week 6 Chapter 10 Solution.doc FIN 534 Week 6 Chapter 11 Solution.doc FIN 534 Week 6 DQ 1.docx FIN 534 Week 6 Quiz 5.doc FIN 534 Week 7 Chapter 12 Solution.doc FIN 534 Week 7 Chapter 13 Solution.doc FIN 534 Week 7 DQ 1.docx FIN 534 Week 7 DQ 2.docx FIN 534 Week 7 Quiz 6.doc FIN 534 Week 8 Chapter 14 Solution.doc FIN 534 Week 8 Chapter 15 Solution.doc FIN 534 Week 8 DQ 1.docx FIN 534 Week 8 DQ......

Words: 797 - Pages: 4

#### Fin 534 Midterm Exam

...FIN 534 Midterm Exam Purchase here http://homeworkonestop.com/FIN%20534/fin-534-midterm-exam Product Description FIN 534 Midterm Exam FIN 534 Midterm Exam Purchase here http://homeworkonestop.com/FIN%20534/fin-534-midterm-exam Product Description FIN 534 Midterm Exam FIN 534 Midterm Exam Purchase here http://homeworkonestop.com/FIN%20534/fin-534-midterm-exam Product Description FIN 534 Midterm Exam FIN 534 Midterm Exam Purchase here http://homeworkonestop.com/FIN%20534/fin-534-midterm-exam Product Description FIN 534 Midterm Exam FIN 534 Midterm Exam Purchase here http://homeworkonestop.com/FIN%20534/fin-534-midterm-exam Product Description FIN 534 Midterm Exam FIN 534 Midterm Exam Purchase here http://homeworkonestop.com/FIN%20534/fin-534-midterm-exam Product Description FIN 534 Midterm Exam FIN 534 Midterm Exam Purchase here http://homeworkonestop.com/FIN%20534/fin-534-midterm-exam Product Description FIN 534 Midterm Exam FIN 534 Midterm Exam Purchase here http://homeworkonestop.com/FIN%20534/fin-534-midterm-exam Product Description FIN 534 Midterm Exam FIN 534 Midterm Exam Purchase here http://homeworkonestop.com/FIN%20534/fin-534-midterm-exam Product Description FIN 534 Midterm Exam FIN 534 Midterm Exam Purchase here http://homeworkonestop.com/FIN%20534/fin-534-midterm-exam Product Description FIN 534......

Words: 336 - Pages: 2

#### Fin 534 Set 1

...Homework Set 1 Fin 534 Pro. Jeffery Woo Fannie Spears January 17, 2016 Strayer University 1. What is the free cash flow for 2014? NOPAT = 502,640 (1-0.40) “ =301,584 NOWC = operating current assets-operating current liabilities “ = 2,608,480 – 739,800 NOWC = 1,868,680 Total net operating capital = NOWC + operating long term assets Total net operating capital = 2,705,520 Net income in operating capital = total net operating capital 2014 – total net operating 2013 Net investment in operating capital = 2,705,520 – 2,257,632 Net investment in operating capital = 447,888 Free cash flow = NOPAT – NIOC Free cash flow = 301,584 – 447,888 Free cash flow = (146,304) 2. Suppose Congress changed the tax laws so that Berndt’s depreciation expenses doubled. No changes in operations occurred. What would happen to reported profit and to net cash flow? Net income would drop down, while net cash flow would go up. 3. Calculate the 2014 current and quick ratios based on the projected balance sheet and income statement data. What can you say about the company’s liquidity position in 2013? Quick ratio = Current assets – Inventories Quick ratio = 2,680,112 – 1,716,480 Current liabilities 1,039,800 Quick ratio = 0.9 Current ratio = Current Assets Current ratio = 2,680,112 Current liabilities ...

Words: 363 - Pages: 2

Free Essay

#### Fin 534 Chapter 4 Homework

...FIN 534 Chapter 4 Homework Loramie Johnson January 26, 2013 1. (b) If the loan were amortized over 10 years rather than 7 years, and if the interest rate were the same in either case, the first payment would include more dollars of interest under the 7-year amortization plan. This statement is true. The first payment would income more dollars in interest since interest in each period is calculated by multiplying the loan balance at the beginning of the year by the interest rate. At the end of the payment schedule, the principal is less therefore the interest paid is less than the first payment. 2. (b) If you have a series of cash flows, and CF0 is negative but each of the following CFs is positive, you can solve for I, but only if the sum of the undiscounted cash flows exceeds cost. This statement is correct. Equation 4-10 of irregular cash flow can illustrate mathematically. Even if the CF0 is negative but the succeeding cash flows are positive and with value greater than the cost or present value, the value if I can be calculated. 3. (d) 0.30%. Midwest Bank will be charging 0.30% lower on effective annual rate. EAR = [ 1 + (0.065/12)]12 – 1.0 = 0.37% EAR = [ 1 + (0.07/ 1)]1 – 1.0 = 0.07% 4. (a) \$3,726.00. FVA46 = 2500 {[(1 + 0.08)46/0.08] – [1/0.08]} = 1,046,075 1046075 = PMT {[(1 + 0.08)41/0.08] – [1/0.08]} = 3725.60 = 3726.00 5. (c) \$2,292.12 Total money needed for 4 year tuition: 14500 * {(1.035)^8} + 14500 * {(1.035)^9} +......

Words: 471 - Pages: 2

#### Fin 534 Financial Management

...1. What is the present value of the following uneven cash flow stream −\$50, \$100, \$75, and \$50 at the end of Years 0 through 3? The appropriate interest rate is 10%, compounded annually. In order to calculate the present value of uneven cash fellow, I would like to identify what is the present value for uneven cash flow means? Although the return or the payment of these cash flow is usually regular, the amounts in most cases is different from period to other period .when we need to determine the present value of certain asst, we cannot use the standard formula, Because using the standard formula assumes that the payment is equal in each period and this now a nurture of the cash flow. The present value of an annuity formula assumes equal cash flows at each time period. However, sometimes cash flows are not even. Learn how to use a formula to calculate the present value of uneven future cash flows. An annuity is an asset that will pay equal amounts of money at regular time periods over its life. Essentially, an annuity can be thought of as a security with equal expected cash flows usually paid annually, semi-annually, quarterly, or monthly. The payment of dividends or payments from a lawsuit settlement are typical annuities. However, expected future cash flows from a security with the uncertainty of market and economic conditions rarely follow such a regular schedule. (Garger &Patsalides, 2010). Now after we exposed to different opinion to uneven present......

Words: 1388 - Pages: 6

#### Fin 534 Student Guide

...N (Prerequisite: ACC 557 or ACC 556) COURSE DESCRIPTION Introduces the concepts of finance. Reviews the basic tools and their use for making financial decisions. Explains how to measure and compare risks across investment opportunities. Analyzes how the firm chooses the set of securities it will issue to raise capital from investors as well as how the firm’s capital structure is formed. Examines how the choice of capital structure affects the value of the firm. Presents valuation and integrate risk, return and the firm’s choice of capital structure. INSTRUCTIONAL MATERIALS Required Resources Brigham, E. F., & Ehrhardt, M. C. (2014). Financial management (14th ed.). Mason, OH: South-Western Cengage Learning. Supplemental Resources MBA Primer Note: The MBA Primer is designed to help students with little or no educational background in business to prepare for the rigors of an MBA program. The MBA Primer is also a useful tool for students who have the business background but might need a refresher. It is a way to help you prepare for the types of activities and concepts that will be covered in the MBA program, so you can feel more comfortable and confident as you progress into higher level courses. Students are emailed an access code for this product when they purchase MBA Primer from the Strayer Bookstore, accessible through iCampus. CNN Money. (2013). General format. Retrieved from http://money.cnn.com/ Criniti, A. (2013). The necessity of finance.......

Words: 1233 - Pages: 5

Free Essay

#### Fin. 534 Chapter 14 Homework

...Fin.534 Chapter 14 Homework 1. Myron Gordon and John Lintner believe that the required return on equity increases as the dividend payout ratio is decreased. Their argument is based on the assumption that c. investors view dividends as being less risky than potential future capital gains. Section 14-3c of our book points out that future gains can be “taxes more favorably than dividend income” 2. Which of the following should not influence a firm's dividend policy decision? c. The fact that much of the firm's equipment has been leased rather than bought and owned. Answer C here is the only answer that does not talk about shareholders or taxes that related to dividends. Answer c does not influence the dividend policy decision. 3.Which of the following statements about dividend policies is correct? d. The clientele effect suggests that companies should follow a stable dividend policy. Section 14.6 talks about the Clientele Effect and putting into place a stable payout type of schedule for the company to use. This would be in the company’s best interest towards dividend policies. 4. Which of the following would be most likely to lead to a decrease in a firm's dividend payout ratio? b. Its R&D efforts pay off, and it now has more high-return investment opportunities. The rest of the answers seem to increase a firms dividend payout. After reading Chapter 14, I feel that a decrease in the firm’s......

Words: 315 - Pages: 2

#### Fin 534 Tutor Inspiring Minds/Fin534Tutor.Com

...FIN 534 Entire Course (Str Course) FOR MORE CLASSES VISIT www.fin534tutor.com FIN 534 Week 1 Chapter 1 Solution FIN 534 Week 1 Chapter 2 Solution FIN 534 Week 2 Chapter 3 Solution FIN 534 Week 3 Chapter 4 Solution FIN 534 Week 3 Chapter 5 Solution FIN 534 Week 4 Chapter 6 Solution FIN 534 Week 4 Chapter 7 Solution FIN 534 Week 5 Chapter 8 Solution FIN 534 Week 5 Chapter 9 Solution FIN 534 Week 6 Chapter 10 Solution FIN 534 Week 6 Chapter 11 Solution FIN 534 Week 7 Chapter 12 Solution FIN 534 Week 7 Chapter 13 Solution FIN 534 Week 8 Chapter 14 Solution FIN 534 Week 8 Chapter 15 Solution FIN 534 Week 9 Chapter 16 Solution FIN 534 Week 10 Chapter 17 Solution Fin 534 Week 1 Quiz 1 FIN 534 Week 3 Quiz 2 FIN 534 Week 4 Quiz 3 FIN 534 Week 5 Quiz 4 FIN 536 Week 6 Quiz 5 FIN 534 Week 7 Quiz 6 FIN 534 Week 8 Quiz 7 FIN 534 Week 9 Quiz 8 FIN 534 Week 10 Quiz 9 FIN 534 Week 11 Quiz 10 FIN 534 Week 1 DQ 1 FIN 534 Week 1 DQ 2 FIN 534 Week 2 DQ 1 FIN 534 Week 2 DQ 2 FIN 534 Week 3 DQ 1 FIN 534 Week 3 DQ 2 FIN 534 Week 4 DQ 1 FIN 534 Week 4 DQ 2 FIN 534 Week 5 DQ 1 FIN 534 Week 6 DQ 1 FIN 534 Week 7 DQ 1 FIN 534 Week 7 DQ 2 FIN 534 Week 8 DQ 1 FIN 534 Week 8 DQ 2 FIN 534 Week 9 DQ 1 FIN 534 Week 9 DQ 2 FIN 534 Week 10 DQ 1 FIN 534 Week 10 DQ 2 FIN 534 Week 11 DQ 1 FIN 534 Week 11 DQ 2 ------------------------------------------------------------------------------------ FIN 534 Week 1 Chapter 1 Solution (Str Course) FOR MORE......

Words: 1501 - Pages: 7

#### Fin 534-Financial Management Homework Sets

Words: 2427 - Pages: 10

#### Fin 534: Financial Management Capital Budgeting

...Capital Budgeting Assignment 2 Ebony N. Robinson FIN 534: Financial Management January 30, 2011 Professor: Dr. Glenn L. Stevens Strayer University Abstract The Net Present Value rule states that when making an investment decision, choose the project with the highest NPV. If the objective is to maximize wealth, then “the NPV rule always gives the correct answer (Berk and DeMarzo, 2011).” According to the text, we use the NPV rule to evaluate capital budgeting decisions, making decisions that maximize NPV (Berk and DeMarzo, 2011). Determining which projects to accept or reject is based on whether or not the project has a positive NPV. NPV compares the value of a dollar today to the value of that same dollar in the future, taking inflation and returns into account. Based upon the principle of this rule, a project with a positive NPV is accepted because it ensures that the future value of that same dollar will be greater. The following scenario is provided to evaluate Bauer Industries’ project to manufacture lightweight trucks. Bauer Industries is an automobile manufacturer. Management is currently evaluating a proposal to build a plant that will manufacture lightweight trucks. Bauer plans to use a cost of capital of 12% to evaluate this project. Based on extensive research, it has prepared the following incremental free cash flow projections (in millions of dollars): |  ...

Words: 791 - Pages: 4