To Call or Not to Call, marketing assignment help

Anonymous
timer Asked: Sep 16th, 2016
account_balance_wallet $10

Question description

***** NEED AUTHENTIC WORK***


Application: To Call or Not To Call

Decisions involving capital expenditures often require managers to weigh the costs and benefits of different options related to the financing of a project. For instance, deciding when to call a bond before maturity due to changing interest rates can lower the overall cost of a project significantly through refinancing. So, it is important to be able to understand the real interest rate being paid out to your bondholders (yield) at any given time.

For this Assignment, review the information presented in Problem 7-18 on page 255 of your course text. You will utilize the information in this week's readings and media to make a recommendation with regard to when to call a bond.

  • Prepare a spreadsheet using Excel or a similar program in which you compute the items listed in parts a, b, and d. Be sure to compute the Yield-to-Maturity (YTM) and Yield-to-Call (YTC) for each of years 5, 6, 7, 8, and 9.
  • Utilizing Word, prepare a written report to your finance director:
    • Include a detailed explanation of the conclusion you reached concerning whether or not to call the bond before maturity.
    • If your recommendation is to call the bond early, explain when to call the bond and your rationale.
    • Discuss the advantages and disadvantages of using a long-term loan instead of a bond.

Submit your Assignment (both your Excel and Word files) by Day 7.

General Guidance on Application Length:

Your Assignment, due by Day 7, will typically be 2–3 pages in length as a general expectation/estimate for each bullet point. Refer to the rubric for the Week 3 Assignment for grading elements and criteria. Your Instructor will use the rubric to assess your work.


Tutor Answer

Xaib
School: UT Austin

Please
let me know if you have any confusion in understanding the answer. I'm always
happy to answer your questions.

Data Given in Question
Face Value
$
Time period (in years)
Annual coupon payment
Current price
$
Call Price
$

1,000
10
11%
1,175
1,090

This bond matures in 10 years.
Pmt is the annual coupon payment. This bond pays 11% annually and it has a face value of $1000. The annu
The bond has a market value of $1175
The bond has a face value of $1000
Coupon payments

Part - A

Year
10
9
8
7
6
5

Yield to maturity
8.35%
8.18%
7.96%
7.68%
7.30%
6.76%
Part - B

Year
5
6
7
8
9

Yield to maturity
8.13%
8.39%
8.56%
8.70%
8.80%

Part - C
The bonds are selling at premium which means that interest rates have decreased since the orginal b
rates do not change from the present value, investors would expect to earn YTC
Part - D
Face Value
$
Time period (in years)
Annual coupon payment

1,000
6
11%

Current price
Year
6
7
8
9

$

1,175

Yield to maturity
8.27%
8.37%
8.46%
8.53%

According to the above calculations, the latest that investors might expect to call the bond is in the ye

ace value of $1000. The annual coupon payment is $110.

creased since the orginal bonds were issued. Assuming these interest
n YTC

to call the bond is in the year 6.


1

Running Head: Report to Kaufman Enterprises’ Finance Director

Report to Kaufman Enterprises’ Finance Director
Student Name:
Course/Number:
Due Date:
Faculty Name:

2

Report to Kaufman Enterprises’ Finance Director
Report to Kaufman Enterprises’ Finance Director
Dear Sir,
According to the statistics, the enterprise has the bond outstanding worth of 1000 face
value and the bond will take 10 years until the maturity. The bonds have an 11% annual coupon
payment, and their current price is $1,175. We can expect that these dons might be brought in 5
years at 109% of face value which implies that the Call cost will be $1,090. Premise this data; I
have computed the Yield to maturity and Yield to call for a couple of years, how much amount is
expected in return and the best year when an investor should go for a call.
Initially, I have calculated the Yield to Maturity (YTM) running from 5 to ...

flag Report DMCA
Review

Anonymous
Thanks, good work

Similar Questions
Hot Questions
Related Tags

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