Homework Answers
In the given case, bond 1 is callable and bond 2 is putable. YTM of bond 1 instantaneously falls and that of bond 2 instantaneously increases because company 1 will buy the bond from the creditors and company 2's creditors will sell the bond back to the company.
Hence, the correct answer is option (D).
Answer to question 13
During expansion phase, a cyclical company with low leverage would be the best as it will perform really well taking full advantage of the economic condition and with that it would also have very high ROE as the debt would be low. Hence, option (D) is preferable
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Company 1 and Company 2 are comparable companies. Bond 1 was issued by Company 1 and...
pany 1 ny 2 are comparable companies. Bond 1 was issued by Company 1 and Bond...
pany 1 ny 2 are comparable companies. Bond 1 was issued by Company 1 and Bond 2 mpany 2. Bond 1 and Bond 2 both currently trade a, par andare yielding 5.0%. Bond i is and Compa ssued by Company 2. Bond 1 and Bond ble at $105 $2,000 $1,800 $1,600 o while Bond 2 is puttable at $950. The graph below can be used for question 12. Bond Price (Y-Axis) vs. Yield to Maturity (X-Axis) $1,37975 51,40117104 $1,270.68 $1,194.61...
Could you please help me solve problem E7-33. Assessing the Effects of Bond Credit Rating Changes...
Could you please help me solve problem E7-33. Assessing the
Effects of Bond Credit Rating Changes
Ford Motor Co. reports the following information from the Risk
Factors and the Management Discussion
and Analysis sections of its 2015 10-K report.
Credit Ratings Our short-term and long-term debt is rated by
four credit rating agencies designated
as nationally recognized statistical rating organizations
(“NRSROs”) by the?U.S. Securities
and Exchange Commission:
• DBRS Limited (“DBRS”);
• Fitch, Inc. (“Fitch”);
• Moody’s Investors Service, Inc....
1. We have the following information for Anheuser-Busch Companies, Inc Company Beta Market Market Bond Value...
1. We have the following information for Anheuser-Busch Companies, Inc Company Beta Market Market Bond Value Value Rating of of Debt Equity 40605 5375 Anheuser-0.5 Busch Assuming no tax is paid. Furthermore, we have the following economy-wide information Government Bond yields 10-year 4.5% Bond yield spreads (ie. bond yield -risk free rate) for A+ rating 10-year 1.00% Assume that the expected return on the S&P 500 is 10%. Estimate Anheuser-Busch's WACC using this information. 2. Identical Twin Beer, Co. has...
Below are five comparable companies that compete in the Widget industry: Company V, Company W Company...
Below are five comparable companies that compete in the Widget industry: Company V, Company W Company X, Company Y, and Company Z. Assume the greater the assets on the balance sheet, the larger the company. Use the financial statement information in the table below to help answer questions 1-6 Debt/Equity Total Aspets Tax Rate Net Income Company V Company W Company X 060 4.0000 100 1. Compared to larger companies in the widget industry, smaller companies in the Widget industry...
1. What is the value of a 5% annual coupon, 10 vr bond. $1.000 par value,...
1. What is the value of a 5% annual coupon, 10 vr bond. $1.000 par value, if interest rates in the economy are 5% 2. T/F the interest rate a bond pays changes when interest rates or the price of the bond changes 3. T/F A U.S. Treasury note or bond has no credit risk and no interest rate risk. 4. What should happen to the price of a B+ corporate bond if the economy enters a recession a. It...
Answer both questions please! 1. We have the following information for Anheuser-Busch Companies, Inc Company Beta...
Answer both questions please!
1. We have the following information for Anheuser-Busch Companies, Inc Company Beta Market Market Bond Value Value Rating of of Debt Equity 40605 5375 Anheuser-0.5 Busch Assuming no tax is paid. Furthermore, we have the following economy-wide information Government Bond yields 10-year 4.5% Bond yield spreads (ie. bond yield -risk free rate) for A+ rating 10-year 1.00% Assume that the expected return on the S&P 500 is 10%. Estimate Anheuser-Busch's WACC using this information. 2. Identical...
Use the following information about Company X to help answer problems 1-10. Company X went public...
Use the following information about Company X to help answer problems 1-10. Company X went public at the start of 2016, $100M shares of stock were issued at $18.60 per share. At the end of 2016, Company X traded at $20.00 per share. During 2017, Company X issued 5 shares at $20.00 per share, thus raising $100M of capital At the end of 2017, Company X traded at $20.46 per share. A summary of Company X's 2016 and 2017 10k...
Bond questions 52018 PART-1-Please SELECT from the choices presented bonds payable callable bond convertible bond Annuities...
Bond questions 52018 PART-1-Please SELECT from the choices presented bonds payable callable bond convertible bond Annuities Streams of level (ie, the same amount each pariod) payments occurring on regular 1. intervals An obligation dvded into transtferable units requiring the issuer to make periodic interest payments and an eventual repayment of the face amount, 2. A bond that provides the issuer an option to reacquire the bends before scheduled 3 maturity at a preset price A bond that may be converted...
1. "An investor who buys a corporate bond is lending money to the company". Is this...
1. "An investor who buys a corporate bond is lending money to the company". Is this statement true or false? Explain. What cash flows should the investor expect to receive? 2. The following is an excerpt from "Netflix Borrowing $2 Billion as War for Content Heats Up". What Bloomberg Intelligence Says "Netflix may issue new junk bonds for several more years as proceeds from debt sales fuel not only free-cash-flow deficits, but also repayment of bond principal. While Netflix may...
pany 1 ny 2 are comparable companies. Bond 1 was issued by Company 1 and Bond 2 mpany 2. Bond 1 and Bond 2 both currently trade a, par andare yielding 5.0%. Bond i is and Compa ssued by Company 2. Bond 1 and Bond ble at $105 $2,000 $1,800 $1,600 o while Bond 2 is puttable at $950. The graph below can be used for question 12. Bond Price (Y-Axis) vs. Yield to Maturity (X-Axis) $1,37975 51,40117104 $1,270.68 $1,194.61...
Could you please help me solve problem E7-33. Assessing the
Effects of Bond Credit Rating Changes
Ford Motor Co. reports the following information from the Risk
Factors and the Management Discussion
and Analysis sections of its 2015 10-K report.
Credit Ratings Our short-term and long-term debt is rated by
four credit rating agencies designated
as nationally recognized statistical rating organizations
(“NRSROs”) by the?U.S. Securities
and Exchange Commission:
• DBRS Limited (“DBRS”);
• Fitch, Inc. (“Fitch”);
• Moody’s Investors Service, Inc....
1. We have the following information for Anheuser-Busch Companies, Inc Company Beta Market Market Bond Value Value Rating of of Debt Equity 40605 5375 Anheuser-0.5 Busch Assuming no tax is paid. Furthermore, we have the following economy-wide information Government Bond yields 10-year 4.5% Bond yield spreads (ie. bond yield -risk free rate) for A+ rating 10-year 1.00% Assume that the expected return on the S&P 500 is 10%. Estimate Anheuser-Busch's WACC using this information. 2. Identical Twin Beer, Co. has...
Below are five comparable companies that compete in the Widget industry: Company V, Company W Company X, Company Y, and Company Z. Assume the greater the assets on the balance sheet, the larger the company. Use the financial statement information in the table below to help answer questions 1-6 Debt/Equity Total Aspets Tax Rate Net Income Company V Company W Company X 060 4.0000 100 1. Compared to larger companies in the widget industry, smaller companies in the Widget industry...
1. What is the value of a 5% annual coupon, 10 vr bond. $1.000 par value, if interest rates in the economy are 5% 2. T/F the interest rate a bond pays changes when interest rates or the price of the bond changes 3. T/F A U.S. Treasury note or bond has no credit risk and no interest rate risk. 4. What should happen to the price of a B+ corporate bond if the economy enters a recession a. It...
Answer both questions please!
1. We have the following information for Anheuser-Busch Companies, Inc Company Beta Market Market Bond Value Value Rating of of Debt Equity 40605 5375 Anheuser-0.5 Busch Assuming no tax is paid. Furthermore, we have the following economy-wide information Government Bond yields 10-year 4.5% Bond yield spreads (ie. bond yield -risk free rate) for A+ rating 10-year 1.00% Assume that the expected return on the S&P 500 is 10%. Estimate Anheuser-Busch's WACC using this information. 2. Identical...
Use the following information about Company X to help answer problems 1-10. Company X went public at the start of 2016, $100M shares of stock were issued at $18.60 per share. At the end of 2016, Company X traded at $20.00 per share. During 2017, Company X issued 5 shares at $20.00 per share, thus raising $100M of capital At the end of 2017, Company X traded at $20.46 per share. A summary of Company X's 2016 and 2017 10k...
Bond questions 52018 PART-1-Please SELECT from the choices presented bonds payable callable bond convertible bond Annuities Streams of level (ie, the same amount each pariod) payments occurring on regular 1. intervals An obligation dvded into transtferable units requiring the issuer to make periodic interest payments and an eventual repayment of the face amount, 2. A bond that provides the issuer an option to reacquire the bends before scheduled 3 maturity at a preset price A bond that may be converted...
1. "An investor who buys a corporate bond is lending money to the company". Is this statement true or false? Explain. What cash flows should the investor expect to receive? 2. The following is an excerpt from "Netflix Borrowing $2 Billion as War for Content Heats Up". What Bloomberg Intelligence Says "Netflix may issue new junk bonds for several more years as proceeds from debt sales fuel not only free-cash-flow deficits, but also repayment of bond principal. While Netflix may...
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