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1.General Matter’s outstanding bond issue has a coupon rate of 8.6%, and it sells at a...

1.General Matter’s outstanding bond issue has a coupon rate of 8.6%, and it sells at a yield to maturity of 7.75%. The firm wishes to issue additional bonds to the public at face value. What coupon rate must the new bonds offer in order to sell at face value? (Round your answer to 2 decimal places.) Favorite Candy’s stock is expected to earn $3.90 per share this year. It’s P/E ratio is 17. What price is the stock price? Round your answer to 2 decimal places.

2. Favorite Candy’s stock is expected to earn $3.90 per share this year. It’s P/E ratio is 17. What price is the stock price? Round your answer to 2 decimal places.

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Answer #1

Answer 1.

“Coupon Rate is 7.75%”

If the company want to issue additional bonds at face value, then it should set a coupon rate equal to the YTM. So, General Matter should issue additional bonds with coupon rate of 7.75%

Answer 2.

“Stock price is $66.30”

Expected EPS = $3.90
P/E Ratio = 17

P/E Ratio = Current Price / Expected EPS
17 = Current Price / $3.90
Current Price = $66.30

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