## Just do my homework!

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Question
Submitted by barzki on Wed, 2013-05-22 22:23
due on Sun, 2013-05-26 22:17
Hand shake with Abhishek Jain: In progress
barzki is willing to pay \$15.00
barzki bought 5 out of 5 answered question(s)
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 principles of fincnace week 7 5 week 7

# Finance

1.  Assume Mr. Davis can buy either a \$10,000 corporate bond yielding 10% or a municipal bond yielding 7%. Assume risk is constant. Assume also that his Federal tax rate will be 28% and his State tax rate 7% and that the municipal bond is exempt from both types of income taxes.  Which should he buy, if the yield and tax consequences are the only variables?

2.  A bond has the following terms:

 Principal amount \$1,000 Semi-annual interest \$50 Maturity 10 years

(When asked for a % yield, round yields to nearest tenth of a percent, such as 10.1 %.)

• What is the bond's price if comparable debt yields 12%?
• What would be the price if comparable debt yields 12% and the bond matures after 5 years?
• What are the current yields and yields to maturity if a. and b.?
• What would be the bond's price in a. if interest rates declined to 8%? What if the bond matures after 5 years?
• What are the current yields and yields to maturity in d.?
• What two generalizations may be drawn from the above price changes?

3.  You purchase a high-yield, junk bond for \$1,000 that pays \$140 annually. After buying the bond, yields decline and you are able to reinvest the interest at only 9 percent. You reinvest all the interest payments.  How much will you have when the bond is retired after 12 years? What was the annual return you earned on this investment?

4.  Determine the current market prices of the following \$1,000 bonds if the comparable rate is 10% and answer the questions.

• XY 5 ¼ percent, with interest paid annually for 20 years.
• AB 14 percent, with interest paid annually for 20 years.
• Which bond has a current yield that exceeds the yield to maturity?
• Which bond may you expect to be called? Why?
• If CD, Inc. has a bond with a 5 ¼ percent coupon and a maturity of 20 years but which was lower rated, what would be its price relative to the XY, Inc. bond? Explain.
Attachments:
Submitted by Abhishek Jain on Wed, 2013-05-22 22:49
teacher rated 147 times
4.666665
purchased 9 times
price: \$16.00

5

## Week7 Solution

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# xxxxxxx 1

xxxxxx enter xxxx answer here: He should xxx the municipal bond xxxxxxxx xx because xxx xxxxx xxx return xxxxx be xxxxxxx xxxx the xxxxxxxxx bond he xxxxx earn \$1000 a xxxx xxx have xx pay \$280 in xxxxxxx xxx and \$70 in state xxx and be left with \$650 a year xxxxxxx xx \$700 x year from xxx municipal xxxxx

# Problem x

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
 Part xx Rate 6% xxxx xx xxx \$50 fv xxxxxx type x xx xxxxxxxxx xxxx b. xxxx xx xxxx xx xxx \$50 fv xxxxxx xxxx 0 xx xxxxxxxxx xxxx xx xxxxxxx yield for a. xxxx xxxxxxx xxxxx xxx xx xxxx xxxxx to xxxxxxxx xxxx xx xxx xxx PV (\$885.30) FV \$1,000 Type x Semi-Annual xxxxxx Rate 6.00% Annual xxxxxx xxxx xxxxxx xxxx xx xxx \$50 PV (\$926.40) FV \$1,000 xxxx x Semi-Annual Return Rate 6.00% xxxxxx Return xxxx 12.00% xxxx xx xxxx xx xx xxxx xx xx pmt \$50 xxx fv xxxxxx xxxxxx xxxx x x xx xxxxxxxxxxx (\$1,081.11) xxxx e. xxxxxxx xxxxx for xx at 10 xxxxx xxxx xxxxxxx yield xxx xx xx 5 years 4.6% xxxx xx
xxxxxx

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Submitted by mhs on Mon, 2013-11-18 13:13
teacher rated 20 times
3.75
purchased 3 times
price: \$15.00

## Solution_Principles of week 7 (100% accurate)

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# xxxxxxx 1

xxxxxxxxxxxxxxxxxx
Corporate xxxx xxxxxxxxx xxxx
Face xxxxx\$10,000\$10,000
xxxxx xxx7%
xxxxxxx tax ratexxx0.0
State xxx xxxx xxxxx
After xxx interest xxxxxx xxxxxxxxxxxxxx
xxxxxx enter your answer here: Mr. Davis should xxx Municipal Bond xxxxx after tax xxxxxx on Municipal xxxx is xxxxxx than that xx Corporate Bond.

# Problem x

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
 xxxx a. xxxx 6% Nper 20 pmt xxx fv xxxxxx type x xx \$885.30 xxxx b. Rate xx xxxx xx xxx xxx fv xxxxxx type x xx xxxxxxx Part xx Current yield for xx xxxxx xxxxxxx xxxxx for xx xxxxx xxxxx xx maturity xxxx 20 xxx xxxxxx PV xxxxxxx FV xxxxxxxxx Type x xxxxxxxxxxx Return xxxx 5.90% xxxxxx Return Rate xxxxxx xxxx xx xxx \$50.00 xx \$926.40 xx \$1,000.00 xxxx \$0.00 Semi-Annual Return Rate xx xxxxxx Return xxxx 12% Part xx Rate 4% xx xxxx xx xx pmt \$50 \$50 xx \$1,000 xxxxxx type 0 0 PV \$1,135.90 \$1,081.11 Part e. xxxxxxx yield for d. xx 10 xxxxx 8.8% xxxxxxx yield xxx d. xx 5 years 9.2% Yield xx xxxxxxxx xxxx 20 Pmt * 50.00 xx xxxxxxxxx FV x xxxxxxxx Type 0 xxxxxxxxxxx xxxxxx xxxx 4% xxxxxx xxxxxx xxxx xx xxxx xx xxx xxx xx 108110.9% xx x 1,000.00 Type x Semi-Annual xxxxxx xxxx xx xxxxxx xxxxxx Rate xx xxxx f:
Please xxxxx xxxx xxxxxx xxxxxxxx the interest xxxx decreases the xxxxx xx bond increases xxx as xxx xxxxxxxx xxxxxxxxx xxx xxxxx of xxxx also increases.
xxx xxx Rate function xx xxxxxxxxx this.
xxx the Rate xxxxxxxx xx

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