You are the single owner of the firm, DavidLee Co, producing semi-conductor for IT firms mainly in Silicon Vally, California. Your firm issued its callable 8.0 %, 20-year bond 10 years ago. The bond is callable at the price that offers an equivalent yield to a Canada bond plus 0.15%. At the issue, it was priced to sell at par. At the issue, a 10-year Canada bond yield was 5.25%. Currently, the bond's yield to maturity is 5%, and the equivalent maturity Canada bonds yield also 5.0%. The bond pays interest annually. Will you consider calling the bond now? Why?

You are the single owner of the firm, DavidLee Co, producing semi-conductor for IT firms mainly in Silicon Vally, California. Your firm issued its callable 8.0 %, 20-year bond 10 years ago. The bond is callable at the price that offers an equivalent yield to a Canada bond plus 0.15%. At the issue, it was priced to sell at par. At the issue, a 10-year Canada bond yield was 5.25%. Currently, the bond's yield to maturity is 5%, and the equivalent maturity Canada bonds yield also 5.0%. The bond pays interest annually. Will you consider calling the bond now? Why?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 17P

See similar textbooks

Similar questions

A firm issues 2-year bonds with a coupon rate of 4.9%, paid semiannually. The credit spread for this firm's 2-year debt is 1.2%. New 2-year Treasury notes are being issued at par with a coupon rate of 5.2%. What should the price of the firm's outstanding 2-year bonds be if their face value is $1000? A. $4.80 B. $972.25 C. $777.80 D.
Mark Goldsmith’s broker has shown him two bonds issued by different companies. Each has a maturity of 5 years, a par value of $1,000, and a yield to maturity of 7.5%. The first bond is issued by Crabbe Waste Disposal Corporation and has a coupon rate of 6.324% paid annually. The second bond, issued by Malfoy Enterprises, has a coupon rate of 8.8% paid annually. 1) Assume that Mark will reinvest all the interest he receives as it is paid, and his rate of return on reinvested interest will be 10%. Calculate the total dollars that Mark will accumulate over 5 years if he invests in Crabbe bonds or Malfoy bonds. Your total dollar calculation will include the interest Mark gets, the principal he receives when the bonds mature, and all the additional interest he earns from reinvesting the coupon payments that he receives.
AYE Technologies issued 10-year bonds yesterday at their par value of RM1,000. These bonds pay RM60 in interest every six months, and their price has remained at the RM1,000 issue price. AYE's CFO has determined that the firm needs an additional RM2,000,000, and has decided to issue 10- year, RM1,000 par value bonds that pay only RM40 in interest every six months. If both bonds are to provide investors with the same yield, how many new bonds must AYE issue to raise RM2,000,000? (Ignore the day or two difference between the bonds' issue dates and any bond flotation costs.)
Ying Import has several bond issues outstanding, each making semiannual interest payments. The bonds are listed in the table below. Bond Coupon Rate Maturity Face Value. $ 8.60% 6.90 8.30 8.80 3 Aftertax cost of debt Price Quote 105.1 95.3 103.9 105.8 % 6 years 9 years 16.5 years 26 years If the corporate tax rate is 21 percent, what is the aftertax cost of the company's debt? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. 21,000,000 41,000,000 46,000,000 61,000,000
Stanley, Inc. issues 20-year $1,000 bonds that pay $80 annually. The market price for the bonds is $909. The market's required yield to maturity on a comparable-risk bond is 9 percent. a. What is the value of the bond to you? b. What happens to the value if the market's required yield to maturity on a comparable-risk bond (i) increases to 12 percent or (ii) decreases to 7 percent? c. Under which of the circumstances in part b should you purchase the bond?
Fu-Wang Ceramics Limited has an outstanding bond that has a face value equal to $1000 and a 10 percent coupon rate of interest. The bond, which matures in six years, currently sells for $1143. The bond that has a call provision that having an effect three years from today at a price of $1143. If the firm calls the bond on the first date possible, it will have to pay a call price equal to $1070. What is the bond's yield to maturity and yield to call? Interpret your answers.
Jiminy's Cricket Farm issued a bond with 25 years to maturity and a semiannual coupon rate of 6 percent 2 years ago. The bond currently sells for 107 percent of its face value. The company's tax rate is 21 percent. a. What is the pretax cost of debt? (Do not round Intermedlate calculatlons and enter your answer as a percent rounded to 2 declmal places, e.g., 32.16.) b. What is the aftertax cost of debt? (Do not round Intermedlate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Pretax cost of debt b. Aftertax cost of debt c. Which is more relevant, the pretax or the aftertax cost of debt? O Aftertax cost of debt O Pretax cost of debt
You bought a six-year bond issued by Oriole Corp. four years ago. At that time, you paid $972.33 for the bond. The bond pays a coupon rate of 7.975 percent, and coupon payments are made semiannually. Currently, the bond is priced at $1,034.56, What yield can you expect to earn on this bond if you sell it today? (Round answer to 2 decimal places, e.g. 15.25%.) Effective annual yield %
Choice Hotels International originally issued a 10 ⅜ bond in 1992. These $1,000 par value bonds mature in five years. What is the value of the Choice Hotels International bond at 10.375%, assuming the investor will hold the bond to maturity? Assume the coupons are paid annually. I ask that you process this step by step as detailed as possible, because the math is what is most confusing to me. So as much as I would like the end solution, the math is the most important part so that I can learn and understand it. I don't mind it being explained like I'm a 5 year old.
BANK ABC purchased a corporate bond with a coupon rate of 5.5% and a face value of $1000. It has 11 years to maturity and is currently selling in the market for $821.53. The bond makes annual coupon payments. BANK ABC is planning on selling this bond at the end of 5 years for $934.86 (ex-interest). What is the holding period yield (HPY) on this bond? 4.7% 5.5% 7% 8% 9% Give typing answer with explanation and conclusion
Mark Goldsmith's broker has shown him two bonds issued by different companies. Each has a maturity of 4 years, a par value of $1,000, and a yield to maturity of 6.80%. The first bond is issued by Crabbe Waste Disposal and has a coupon interest rate of 6.317% paid annually. The second bond, issued by Malfoy Enterprises, has a coupon interest rate of 8.90% paid annually. a. Calculate the selling price for each of the bonds. b. Mark has $19,000 to invest. If he wants to invest only in bonds issued by Crabbe WasteDisposal, how many of those bonds could he buy? What if he wants to invest only in bonds issued by Malfoy Enterprises? c. What is the total interest income that Mark could earn each year if he invested only in Crabbe bonds? How much interest would he earn each year if he invested only in Malfoy bonds? d. Assume that Mark will reinvest all the interest he receives as it is paid and that his rate of return on the reinvested interest will be 11%. Calculate the…
The Emory Corporation issued an 8%, 25-year bond 15 years ago. At the time of issue it sold for its par (face) value of $1,000. Comparable bonds are yielding 10% today. What must Emory’s bond sell for in today’s market to yield 10% (YTM) to the buyer? Assume the bond pays interest annually. Also calculate the bond’s current yield. a) Suppose the bond was issued 20 years ago what price must it be sold for today and also calculate the bond’s current yield b) Assume the bond was issued 5 years ago what price must it be sold for today and also calculate the bond’s current yield