Question

Problem 2-18 Functions of Financial Markets (L03) Consider the table given below to answer the first question (shares and market values in millions). Callaway Golf (ELY) Alaska Air Group (ALK) Entergy (ETR) Yum! Brands (YUM) General Electric (GE) Number of Shares 93.8 124.7 178.5 408.7 9,331.0 X X X X Stock Price $ 8.76 $ 80.77 $ 75.92 $ 77.77 $ 30.34 Market - Capitalization 821 = $ 10,074 $ 13,551 $ 31,875 - $ 283,091 X a. The price of Entergy stock has risen to $90. What is the market value of the firm's equity if the number of outstanding Shares does not change? (Enter your answer in billions rounded to 3 decimal flaces.) b. The rating agency has revised Catalytic Concept's bond rating to A (use Table 2.2). What interest rate, approximately. would the company now need to pay on its bonds? (Enter your answer as a percent rounded to 2 decimal places.) Interest rate c. A farmer and a meatpacker use the commodity markets to reduce their risk. One agrees to buy live cattle in the future at a fixed price, and the other agrees to sell. Which one sells? A farmer A meatpacker

Answer 1

Solution: a) Market value 178.5*90/1000 16.065 billion b) Interest rate (rate corresponding to credit rating A) 3.03% A farmer (as farmer raises them and sale it for consideration and meat packer needs beef for his business).