# homework 78

*label*Business Finance

*timer*Asked: Jul 3rd, 2018

*account_balance_wallet*$5

**Question description**

NO PLAGIARISM PLZ

there are two files to be answered

some of the questions

- Which of the following is NOT a type of long-term debt?
- mortgage bonds
- debentures
- debenture bonds
- commercial paper

- What is the current price of a bond issued by Dundee International which pays a semiannual coupon rate of 6 8/9%? The bond matures in 5 years and the required return on investments of similar risk is 6.5%.

the rest are in files

## Tutor Answer

Attached.

Instructor:

Homework

FIN 3343

Name__________________________

Please select the best choice from the answer choices given.

1.

Which of the following is NOT a type of long-term debt?

a. mortgage bonds

b. debentures

c. debenture bonds

d. commercial paper

answer; commercial paper

2.

What is the current price of a bond issued by Dundee International which pays a

semiannual coupon rate of 6 8/9%? The bond matures in 5 years and the required return

on investments of similar risk is 6.5%.

assuming cash

flow and maturity value= 1000

Current price of the bond = Semi Annual Coupon*(1-(1+r)^-n)/r + Face value/(1+r)^n

r = 6.5%*1/2 = 3.25%

n = 5*2 = 10

Current price of the bond = (1000*(6+8/9)%*1/2)*(1-(1+3.25%)^-10)/3.25% +

1000/(1+3.25%)^10

Current price of the bond = 1016.38

3.

Maxine Corp has a 5 1/8% coupon bond outstanding in 2004. The bond matures on April

1 in the maturity year. Suppose an investor bought this bond on April 1, 1999 and

assume that interest is paid annually on April 1. Calculate the yield-to-maturity assuming

the investor buys the bond at 105, as quoted in the financial press.

Solution;

N= 5*2

PV= $105

PMT=51.3/2

FV=1000

Solving for i=4.26*2=8.52%

1

Instructor:

A “junk bond” is a term used to describe a bond that

a. is in default

b. is rated Ba or lower

c. is currently paying interest

d. has been downgraded by Moody’s

answer; describes bond that is normally rated Ba or lower

4.

5.

_____________________________are not secured by specific assets.

Debentures are the only one that are not secured by specific assets

6.

Determine the expected inflation rate if the nominal rate of return is 10% and the real rate

of return is 7%.

Answer;

Expected inflation= nominal rate of return- the real rate of return

10%-7%= 3%

= 3%

7.

You just purchased a bond for 99.35. It matures in 12 years and pays a coupon of 8 3/7%

semiannually. What return can you expect to earn if you hold it until maturity?

Assuming that you hold bond whose par value is $100, then we determine cashflow first

=( (59/7)%* 100)/2= 8.429/2= $4.214

Now we apply this formula $99.35= $4.214*(1-(1/(1+i)^8.4))/i+$100*(1/(1+i)^8.4)

Since the price par value is higher than bond price then this means bond is priced at

discount and the interest will be greater than (59/7)%

(59/7)%= 0.084

So we use % higher than 0.0842 in order to get which corresponds 99.35

2

Instructor:

The interest is 9.04%

8.

The ____ the investor's required rate of return on a bond, the ____ will be the value of the

bond to the investor.

Answer; the lower, the higher

9.

A sinking fund allows the issuer to

a. redeem an entire debt issue prior to maturity

b. purchase a portion of the debt each year in the open market or call

a portion of the debt for mandatory redemption

c. call the entire debt issue

d. accumulate interest expenses into a sinking fund account

Answer; this sinking fund allows the issuer to purchase a portion of the debt each year in the

open market or call a portion of the debt for mandatory redemption

10.

How many years are left until maturity of a bond that is selling for $916.95? The coupon

rate of the bond is 8 percent, interest is payable semiannually, and the current market rate

of return on a similar risk bond is 10 percent.

You can use try and error or calculator where you feed numbers that can be near $916.95

Interest= 10/2 since is semiannually

Pv=916.95

PMT=80/2

FV=1000 assuming

The...

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