Business and finance help with Synchron Corporation and capital markets

Dec 30th, 2015
Business Finance
Price: $30 USD

Question description

1.  Synchron Corporation borrowed long-term capital at an interest rate of 8.5 percent under the expectation that the annual inflation rate over the life of this borrowing was likely to be 5 percent. However, shortly after the loan contract was signed, the actual inflation rate climbed to 5.5 percent, where it is expected to remain until Synchron’s loan reaches maturity. What is likely to happen to the market value per share of Synchron’s common stock? Would its stock price be more affected or less affected than the price of the bonds? Explain your reasoning.

2. The market yield to maturity on a risky bond is currently listed at 10.50 percent. The riskfree
interest rate is estimated to be 5.25 percent. What is the default-risk premium, all
other factors removed? The promised yield on this bond is 11 percent. A certain investor,
looking at this bond, estimates there is a 25 percent probability the bond will pay 11
percent at maturity, a 50 percent probability it will pay a 6 percent return, and a 25
percent probability it will yield only 2 percent. What is the bond’s expected yield? What is
this investor’s anticipated default loss? Will the investor buy this bond?

Tutor Answer

(Top Tutor) ikire
School: Cornell University

Studypool has helped 1,244,100 students

Review from student
" Thanks, good work "
Ask your homework questions. Receive quality answers!

Type your question here (or upload an image)

1823 tutors are online

Brown University

1271 Tutors

California Institute of Technology

2131 Tutors

Carnegie Mellon University

982 Tutors

Columbia University

1256 Tutors

Dartmouth University

2113 Tutors

Emory University

2279 Tutors

Harvard University

599 Tutors

Massachusetts Institute of Technology

2319 Tutors

New York University

1645 Tutors

Notre Dam University

1911 Tutors

Oklahoma University

2122 Tutors

Pennsylvania State University

932 Tutors

Princeton University

1211 Tutors

Stanford University

983 Tutors

University of California

1282 Tutors

Oxford University

123 Tutors

Yale University

2325 Tutors