Potomac Company’s Bonds

Potomac Company’s Bonds

Potomac Company’s Bonds for $1 Only

Potomac Company bonds: The Potomac Company’s bonds have a face value of $1,000, will mature in 20 years, and carry a coupon rate of 16 percent. Assume interest payments are made semiannually. Determine the present value of the bond’s cash flows if the required rate of return is 15 percent.

Find the real return on the following investments:

Stock    Nominal      Return Inflation

B          15%            8%

A          10%             3%

C           -5%            2%

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Which of these statements are false Bonds Related

Which of these statements are false Bonds Related

Which of these statements are false Bonds Related for $2 Only

Which of these statements is false? Bonds are always less risky than stocks. The bond market is larger than the stock market. Some bonds offer high potential for rewards and, consequently, higher risk. Bonds are more important capital sources than stocks for companies and governments.

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Answer of The Real Risk Free Rate is 2.8%…

Answer of The real risk free rate is 2.8%...

Answer of The Real Risk Free Rate is 2.8%… for $2 Only (Instant Download)

The real risk free rate is 2.8% and is expected to remain constant. Inflation is expected to be 8% per year for each of the next 5 years and 7% thereafter.

The maturity risk premium is determined from the formula : 0.1(t-1)%, where t is the security’s maturity. The liquidity premium (LP) on all Pellegrini Sourthern Inc.’s bonds is 1.05%. The following table shows the current relationship between bond ratings and default risk premiums (DRP):

Rating                   DRP

U.S. Treasury         —-

AAA                         0.60%

AA                           0.80%

A                             1.05%

BBB                        1.45%

1a. Pellegrini Southern Inc. issues 9-year, AA rated bonds. What is the yield on one of these bonds?Disregard cross-product terms; that is, if averaging is requried, use the arithmetic average.
a. 12.21%
b. 13.01%
c. 11.96%
​d. 5.45%

1b. Based on your understanding of the determinants of interest rates, if everything else remains the same, which of the following will be true?
​a. Hiher inflation expectations increase the nominal interest rate demanded by investors.
​b. The yield on AAA-rated bond will be higher than the yield on a BB-rated bond.

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Finance Questions I

Finance Questions I

  1. If you invest $2,000 a year in a retirement account, how much will you have in 40 years at 12%?
  2. There is a stock that pays dividends of $2.00 at the end of 1st yr, $2.20 at the end of 2nd yr, and $2.40 at the end of 3rd yr.  At the end of 3rd yr the stock will sell for $33.00  what is the present value of all future benefits if a discount rate of 11% is applied?
  3. $1,000 par value bonds are outstanding at 8% interest.  The bonds mature in 25 yrs.  What is the current price of the bonds if the present yield to maturity is 13%?
  4. Preferred stock is issued at a fixed dividend of $6 per share.  With time yields have soared to 14%.
  5. If the yield on the S&P preferred stock index declines, how will the price of the preferred stock be affected?

Answer available.

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Finance Questions

Finance Questions Answers in $9 only

Question 1

Lump sum issuance of stock.

Landon Corporation has issued 2,000 shares of common stock and 400 shares of preferred stock for a lump sum of $72,000 cash.

Instructions

(a)          Give the entry for the issuance assuming the par value of the common was $5 and the market value $30, and the par value of the preferred was $40 and the market value $50. (Each valuation is on a per share basis and there are ready markets for each stock.)

(b)          Give the entry for the issuance assuming the same facts as (a) above except the preferred stock has no ready market and the common stock has a market value of $25 per share.

Question 2

Treasury stock.

For numerous reasons, a corporation may reacquire shares of its own capital stock. When a company purchases treasury stock, it usually accounts for the stock using the cost method.

Instructions

Explain how a company would account for each of the following:

1. Purchase of shares at a price less than par value.

2. Subsequent resale of treasury shares at a price less than purchase price, but more than par value.

3. Subsequent resale of treasury shares at a price greater than both purchase price and par value.

4. Effect on net income.

Question 3

Dividends on preferred stock.

The stockholders’ equity section of Knott Corporation shows the following on December 31, 2007:

Preferred stock—6%, $100 par, 4,000 shares outstanding$   400,000
Common stock—$10 par, 60,000 shares outstanding$  600,000
Paid-in capital in excess of par$  200,000
Retained earnings$  114,000
Total stockholders’ equity$ 1,314,000

instructions

Assuming that all of the company’s retained earnings are to be paid out in dividends on 12/31/07 and that preferred dividends were last paid on 12/31/05, show how much the preferred and common stockholders should receive if the preferred stock is cumulative and fully participating.

Question 4

(EPS with Convertible Bonds and Preferred Stock)

On January 1, 2007, Crocker Company issued 10-year, $2,400,000 face value, 10% bonds, at par. Each $1,000 bond is convertible into 16 shares of Crocker common stock. Crocker’s net income in 2007 was $300,000, and its tax rate was 40%. The company had 100,000 shares of common stock outstanding throughout 2007. None of the bonds were converted in 2007.

Instructions

(Round answers to 2 decimal places.)

a.)    Compute diluted earnings per share for 2007.

b.)    compute diluted earnings per share for 2007 using the same facts as those assumed for part (a), except that $1,200,000 of 10% convertible preferred stock was issued instead of the bonds. Each $100 preferred share is convertible into 7 shares of Crocker common stock.

Question 5

Basic and diluted EPS.

The following information was taken from the books and records of Simonic, Inc.:

Instructions

Compute basic and diluted earnings per share.

Answer available.

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Assignment on Exxon Mobil FIN 534

Assignment on Exxon Mobil FIN 534

Exxon Mobil (US publicly-traded company)
The analysis should be 3-4 pages.
Lecture/discussion on types of business organizations and corporate securities.
Analyze the advantages and disadvantages of incorporating a business. Explain the concept of “limited liability”.
Review of Financial Research Report:  This assignment is an analysis of a US publicly-traded company; its common stock could be a prospective investment.
Company Overview.  Conduct research and describe the company, its operations, locations, markets, and lines of business. Collect financial statements for the past three years, fiscal or calendar.

Laurel Corporation Purchased Bonds

Laurel Corporation Purchased Bonds in $11 only

On December 31, 2013, the Laurel Corporation purchased bonds of another company.The bonds had a face value of $200,000, mature on December 31, 2017, and pay a coupon rate of 4% semi-annually on June 30 and Dec 31. The bonds were yielding 3.5% on the date of purchase. Laurel paid $4,500 in transaction costs.

On December 31, 2014 and 2015 the bonds are trading at 105 and 103.2 respectively.

On January 2, 2016, the bonds are sold at 103 less $4,000 in transaction costs.

Prepare all journal entries for December 31, 2013 through January 2, 2016 on the assumption that the securities are classified as…

a. Amortized Cost

b. FVTOCI

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P14-7 Entries for Life Cycle of Bonds Seminole Company

P14-7 Entries for Life Cycle of Bonds Seminole Company in $6 only

P14-7 (Entries for Life Cycle of Bonds) On April 1, 2014, Seminole Company sold 15,000 of its 11%, 15-year, $1,000 face value bonds at 97. Interest payment dates are April 1 and October 1, and the company uses the straight-line method of bond discount amortization. On March 1, 2015, Seminole took advantage of favorable prices of its stock to extinguish 6,000 of the bonds by issuing 200,000 shares of its $10 par value common stock. At this time, the accrued interest was paid in cash. The company’s stock was selling for $31 per share on March 1, 2015.

Instructions:

FIN 534 Week 3 Homework Chapter 5

FIN 534 Week 3 Homework Chapter 5

1. Three $1,000 face value bonds that mature in 10 years have the same level of risk, hence their YTMs are equal. Bond A has an 8% annual coupon, Bond B has a 10% annual coupon, and Bond C has a 12% annual coupon. Bond B sells at par. Assuming interest rates remain constant for the next 10 years, which of the following statements is CORRECT?

a. Bond A’s current yield will increase each year.

b. Since the bonds have the same YTM, they should all have the same price, and since interest rates are not expected to change, their prices should all remain at their current levels until maturity.

c. Bond C sells at a premium (its price is greater than par), and its price is expected to increase over the next year.

d. Bond A sells at a discount (its price is less than par), and its price is expected to increase over the next year.

e. Over the next year, Bond A’s price is expected to decrease, Bond B’s price is expected to stay the same, and Bond C’s price is expected to increase.

2. Which of the following statements is CORRECT?

a. Two bonds have the same maturity and the same coupon rate. However, one is callable and the other is not. The difference in prices between the bonds will be greater if the current market interest rate is below the coupon rate than if it is above the coupon rate.

b. A callable 10-year, 10% bond should sell at a higher price than an otherwise similar noncallable bond.

c. Corporate treasurers dislike issuing callable bonds because these bonds may require the company to raise additional funds earlier than would be true if noncallable bonds with the same maturity were used.

d. Two bonds have the same maturity and the same coupon rate. However, one is callable and the other is not. The difference in prices between the bonds will be greater if the current market interest rate is above the coupon rate than if it is below the coupon rate.

e. The actual life of a callable bond will always be equal to or less than the actual life of a noncallable bond with the same maturity. Therefore, if the yield curve is upward sloping, the required rate of return will be lower on the callable bond.

WACC Calculation for Filer Manufacturing

WACC Calculation for Filer Manufacturing

Filer manufacturing has 7.5 millions shares of common stock outstanding. The current share price is $49, and the book value per share is $4. Filer also has 2 bond issues outstanding the first bond issue has a face value of $60 millions and a 7% coupon and sells for 93% of par. The second issue has a face value of $50 million and a 6.5% coupon and sells for 96.5 percent of par. The first issue matures in 10 years, the second in 6 years. Suppose the company’s stock has a beta of 1.2. The risk free rate is 5.2%, and the market risk premium is 7%. Assume that the overall cost of debt is the weighted average implied by the 2 outstanding debt issues. Both bonds make semiannual payments. The tax rate is 35%. What is the company’s WACC?

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