Question

QUESTION 7 IBM has just issued a callable (at par) 5 year, 9% coupon bond with quarterly coupon payments. The bond can be called at par in two years or anytime thereafter on a coupon payment date. It has a price of $102 per $100 face value, implying a yield to maturity of 8.78%. What is the bond's yield to call? O 6.86% 8.78% O 8.15% O 7.91% QUESTION 8 Suppose you borrow $10,641.61 when financing a gym valued at $35,981.54. Assume that the unlevered cost of the gym is 22.86% and that the cost of debt is valued at 11.61%. What should be the cost of equity of your firm? MOTE. ACOP in narcentage LF VULCwAri AOE bananuor AOC

Answer 1

C =9/4	2.25
n =2*4	8
P	100
Bond Price	102
YTC	YTC
Bond price =C*[1-(1+YTM)^-n / YTM] + [P/(1+YTM)^n]
Where,
C= Coupon amount
YTC = Yield to call
n = Number of periods
P= Par value
$102=2.25 * [1 - (1 + YTC)^-8 / YTC] + [100 / (1 + YTC) ^8]
YTC = 1.97% ( for a quarter)
YTC = 1.975*4 = 7.91%