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3. Black Sheep Corporations balance sheet as of today is as follows: Long-term debt (bonds, at par) $10,000,000 Preferred st
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Answer #1

Coupon = (0.04 * 1000) / 2 = 20

Number of periods = 10 * 2 = 20

Rate = 12% / 2 = 6%

Price of bond = Coupon * [1 - 1 / (1 + r)n] / r + FV / (1 + r)n

Price of bond = 20 * [1 - 1 / (1 + 0.06)20] / 0.06 + 1000 / (1 + 0.06)20

Price of bond = 20 * [1 - 0.311805] / 0.06 + 311.804727

Price of bond = 20 * 11.469917 + 311.804727

Price of bond = 541.2031

Number of bonds = 10,000,000 / 1,000 = 10,000

Market value of debt = 10,000 * 541.2031

Market value of debt = $5,412,031.51

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