Swifty Corporation has three outstanding bonds with market values of 98,000, 231,000 and 185,000 with respective...

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Question

Swifty Corporation has three outstanding bonds with market values of 98,000, 231,000 and 185,000 with respective...

Swifty Corporation has three outstanding bonds with market values of

98,000, 231,000 and 185,000 with respective interest coupons of 8, 10 and

12 percent. The current yield of those bonds are 4%, 6% and 5.5%. The

corporation is considering a new project, what rate should be used for an

expected interest rate?

business finance

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Answer 1

Answer #1

The weighted average yield should be used as expected interest rate

Total debt = 98000+231000+ 185000 = 514000

Hence

Expected interest rate = 4%* 98000/514000+ 6%*231000/514000+ 5.5%*185000/514000

=5.44%

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Answer 2

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Add Answer to: Swifty Corporation has three outstanding bonds with market values of 98,000, 231,000 and 185,000 with respective...

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Swifty Corporation has three outstanding bonds with market values of 98,000, 231,000 and 185,000 with respective...