Find the present value PV of the given investment (in dollars). (Round your answer to the nearest cent.) An investment earns 5% per year and is worth $8,000 after 8 months. The following table lists several corporate bonds issued during the second quarter of 2015. Company AT&T Bank of America General Electric Goldman Sachs Verizon Wells Fargo Time to Maturity (years) 10 10 2 3 8 7 Annual Rate (%) 3.40 4.00 5.25 6.15 5.15 3.50 If you spent $60,000 on Bank of America bonds, how much interest would you earn every 6 months? HINT [See Example 3.] $ How much interest would you earn over the life of the bonds?
Cost of Capital
Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.
Capital Structure
Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.
Weighted Average Cost of Capital
The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.
| Company | AT&T | Bank of America | General Electric | Goldman Sachs | Verizon | Wells Fargo |
|---|---|---|---|---|---|---|
| Time to Maturity (years) |
10 | 10 | 2 | 3 | 8 | 7 |
| Annual Rate (%) |
3.40 | 4.00 | 5.25 | 6.15 | 5.15 | 3.50 |
Future value = $8,000
Interest rate = 5%
Time period = 8 months
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
