Question

25. Today (T-O), an investor purchased a 20 year bond with a 5.00% coupon and a face value of $100,000 for $106,550. In six months (T-0.5) interest rates have decreased by 0.50% and the investor decides to sell the bond immediately after receiving the first coupon payment. What is the investor's total gain (loss) on the bond? HINT: Total Gain (Loss) Price Change in Bond +Coupon A. ($6,548) B. ($6,048) C. $7,130 D. $7,602 E. $7,630 Assume all future cash flows (FCFF, FCFE, and Dividends) will grow at a constant sustainable growth rate policy. The company's cost of debt is 20% while the company's cost of equity is 30%; the company has an effective tax rate of 35%. Use the following information in the table below to help answer problems 26-27: FCFE Today (T O) FCFF Today (T-0) Shareholder Equity Total Debt Total Assets Net Income Dividends Shares Outstanding in millions 800 750 400 600 1000 100 40 25 26. An activist investor who wants to purchase all the company's shares would be willing to pay approximately_ Do not use the DDM. Use either FCFF or FCFE, whichever is appropriate a. $165 per share b. $176 per share c. $213 per share d. $230 per share e. $245 per share 27. A private equity group who wants to purchase all of the company's assets would be willing to pay approximately . Do not use the DDM. Use either FCFF or FCFE, whichever is appropriate a. $9,583M b. $10,222M c. $10,518M d. $17,969M e. $19,167M

Answer 1

25)

Face value	100000
coup	5%
buying price	106,550
Maturity	20
Fre	2
YTM1	4.50%
YTM2	4.00%
selling price	113135.6288
Coupon gain	5000
total gain	11,586

Selling price calculation,

	Cash flows	PV factor	PV cash flow
1	5000	0.96154	4807.698
2	5000	0.924558	4622.792
3	5000	0.888999	4444.997
4	5000	0.854808	4274.04
5	5000	0.821932	4109.659
6	5000	0.79032	3951.6
7	5000	0.759924	3799.619
8	5000	0.730697	3653.484
9	5000	0.702594	3512.97
10	5000	0.675572	3377.859
11	5000	0.649589	3247.945
12	5000	0.624606	3123.028
13	5000	0.600583	3002.915
14	5000	0.577484	2887.421
15	5000	0.555274	2776.37
16	5000	0.533918	2669.59
17	5000	0.513383	2566.916
18	5000	0.493638	2468.191
19	105000	0.474653	49838.53
			113135.6

Before calculating the selling price, we have to calculate the interest rate (YTM) it can be done using rate excel function.