Homework Answers
5.A
The price of the bond is going to decrease and the yield on the bond is going to increase
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5. A bond is downgraded from BBB to BB. The price of the bond is going...
6A. You can continue to use your less efficient machine at a cost of $20,000 annually for the next five years. Alte...
6A. You can continue to use your less efficient machine at a cost of $20,000 annually for the next five years. Alternatively, you can purchase a 5-year more efficient machine for $30,000 plus $10,000 annual maintenance. At a cost of capital of 15%, The EAC of the new machine will be ............... than that of the old machine by $............ greater/lower 6B. You can continue to use your less efficient machine at a cost of $10,000 annually for the next...
Credit Rating Yield AAA 3% AA 3.2% A 3.5% BBB 3.8% BB 4.5% B 5.25% a....
Credit Rating Yield AAA 3% AA 3.2% A 3.5% BBB 3.8% BB 4.5% B 5.25% a. Given the yields for bonds with different credit ratings, what would be the fair price of a 5-year maturity bond, which currently has identical risk to a bond rated ‘A’, if it has a coupon rate of 12% paid annually, and a par value of $1,000? b. What would be the price of the bond 3 years from today if the bond is expected...
Using calculating formula Credit Rating Yield AAA 3% AA 3.2% A 3.5% BBB 3.8% BB 4.5%...
Using calculating formula Credit Rating Yield AAA 3% AA 3.2% A 3.5% BBB 3.8% BB 4.5% B 5.25% a. Given the yields for bonds with different credit ratings, what would be the fair price of a 5-year maturity bond, which currently has identical risk to a bond rated ‘A’, if it has a coupon rate of 12% paid annually, and a par value of $1,000? b. What would be the price of the bond 3 years from today if the...
6B. You can continue to use your less efficient machine at a cost of $10,000 annually...
6B. You can continue to use your less efficient machine at a cost of $10,000 annually for the next five years. Alternatively, you can purchase a 5-year more efficient machine for $15,000 plus $5,000 annual maintenance. At a cost of capital of 15%, you should: A) Buy the new machine and save $525 in equivalent annual costs. B) Keep the old machine and save $525 in equivalent annual costs. c) Keep the old machine and save $1933 in equivalent annual...
For a discount bond, its coupon rate is_ than its yield to maturity and its price...
For a discount bond, its coupon rate is_ than its yield to maturity and its price is expected to __over the years. A B. C. D. Greater; increase Greater; decrease Lower; increase Lower; decrease A corporate bond has a 30-year maturity and pays interest annually. The quoted coupon rate is 10% and the bond is priced at par. The boond is callable in 5 years at 120% of par. What is the bonds yield to call? (Choose the closest one)...
A corporate bond with a 5 percent coupon has 10 years left to maturity. It has had a credit rating of BBB and a yield to maturity of 8.0 percent. The firm has recently gotten into some trouble and the rating agency is downgrading the bonds to BB. The new
A corporate bond with a 5 percent coupon has 10 years left to maturity. It has had a credit rating of BBB and a yield to maturity of 8.0 percent. The firm has recently gotten into some trouble and the rating agency is downgrading the bonds to BB. The new appropriate discount rate will be 9 percent. What will be the change in the bond's price in dollars? Assume interest payments are paid semiannually and par value is $1,000.
10. Bond ratings Aa Aa Rating agencies-such as Standard & Poor's (S&P), Moody's Investor Service, and...
10. Bond ratings Aa Aa Rating agencies-such as Standard & Poor's (S&P), Moody's Investor Service, and Fitch Ratings-assign credit ratings to bonds based on both quantitative and qualitative factors. These ratings are considered indicators of the issuer's default risk, which impacts the bond's interest rate and the issuer's cost of debt capital. Based on these ratings, bonds are classified into investment-grade bonds and junk bonds. Which of the following bonds is likely to be classified as a junk bond? OA...
The electronics company plans to replace the manually operated manufacturing machine with a new fully automated...
The electronics company plans to replace the manually operated manufacturing machine with a new fully automated machine. Use the following information to determine the cash flows and profitability of the replacement decision. Current situation • Current estimated wages of operators are 30,000 annually. By replacing, we can save these labour related costs. • Maintenance costs € 8,000 per year. • Waste related costs of € 10,000 per year • The machine currently in use was bought 5 years ago for...
Net cash flow and timeline depiction For each of the following projects, determine the net cash...
Net cash flow and timeline depiction For each of the following projects, determine the net cash flows, and depict the cash flows on a time line. a. A project that requires an initial investment of $120,000 and will generate annual operating cash inflows of $25,000 for the next 18 years. In each of the 18 years, maintenance of the project will require a $5,000 cash outflow. b. A new machine with an installed cost of $85,000. Sale of the old...
A coupon bond which pays interest of $60 annually, has a par value of $1,000, matures...
A coupon bond which pays interest of $60 annually, has a par value of $1,000, matures in 5 years, and is selling today at a 584.52 discount from par value. The approximate yield to maturity on this bond is A6% B. 7% C. 8% D. 9% For a discount bond, its coupon rate is_than its yield to maturity and its price is expected to ___over the years. A B. C. D. Greater; increase Greater; decrease Lower; increase Lower; decrease A...
6A. You can continue to use your less efficient machine at a cost of $20,000 annually for the next five years. Alternatively, you can purchase a 5-year more efficient machine for $30,000 plus $10,000 annual maintenance. At a cost of capital of 15%, The EAC of the new machine will be ............... than that of the old machine by $............ greater/lower 6B. You can continue to use your less efficient machine at a cost of $10,000 annually for the next...
6B. You can continue to use your less efficient machine at a cost of $10,000 annually for the next five years. Alternatively, you can purchase a 5-year more efficient machine for $15,000 plus $5,000 annual maintenance. At a cost of capital of 15%, you should: A) Buy the new machine and save $525 in equivalent annual costs. B) Keep the old machine and save $525 in equivalent annual costs. c) Keep the old machine and save $1933 in equivalent annual...
For a discount bond, its coupon rate is_ than its yield to maturity and its price is expected to __over the years. A B. C. D. Greater; increase Greater; decrease Lower; increase Lower; decrease A corporate bond has a 30-year maturity and pays interest annually. The quoted coupon rate is 10% and the bond is priced at par. The boond is callable in 5 years at 120% of par. What is the bonds yield to call? (Choose the closest one)...
10. Bond ratings Aa Aa Rating agencies-such as Standard & Poor's (S&P), Moody's Investor Service, and Fitch Ratings-assign credit ratings to bonds based on both quantitative and qualitative factors. These ratings are considered indicators of the issuer's default risk, which impacts the bond's interest rate and the issuer's cost of debt capital. Based on these ratings, bonds are classified into investment-grade bonds and junk bonds. Which of the following bonds is likely to be classified as a junk bond? OA...
Net cash flow and timeline depiction For each of the following projects, determine the net cash flows, and depict the cash flows on a time line. a. A project that requires an initial investment of $120,000 and will generate annual operating cash inflows of $25,000 for the next 18 years. In each of the 18 years, maintenance of the project will require a $5,000 cash outflow. b. A new machine with an installed cost of $85,000. Sale of the old...
A coupon bond which pays interest of $60 annually, has a par value of $1,000, matures in 5 years, and is selling today at a 584.52 discount from par value. The approximate yield to maturity on this bond is A6% B. 7% C. 8% D. 9% For a discount bond, its coupon rate is_than its yield to maturity and its price is expected to ___over the years. A B. C. D. Greater; increase Greater; decrease Lower; increase Lower; decrease A...
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