BUSN602 Week 4 Homework Problems:
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You will complete your homework in Microsoft Excel, in the template provided in the assignment. Your work must be organized and properly formatted. Short essay answers must include references.
• Chapter 10: DQ10-2, DQ10-8, DQ10-11; E10-1, E10-4, E10-6, E10-23
Name your assignment file as “LastnameFirstinitial- BUSN602-Week4", and submit by midnight ET, Day 7.
What are the major sources of long-term funds available to business corporations? Indicate their relative importance.
Briefly describe the types of bonds that can be issued to provide bondholder security.
Why might a firm want to maintain a high bond rating? What has been happening to bond ratings in recent years?
Compute the annual interest payments and principal amount for a Treasury Inflation-Protected Security with a par value of $1,000 and a 3-percent interest rate if inflation is 4 percent in year 1, 5 percent in year 2, and 6 percent in year 3.
Assume a $1,000 face value bond has a coupon rate of 8.5 percent paid semiannually and has an eight-year life. If investors are willing to accept a 10 percent rate of return on bonds of similar quality, what is the present value or worth of this bond?
The Garcia Company’s bonds have a face value of $1,000, will mature in 10 years, and carry a coupon rate of 16 percent. Assume interest payments are made semiannually.
a. Determine the present value of the bond’s cash flows if the required rate of return is 16 percent.
b. How would your answer change if the required rate of return is 12 percent?
The Joseph Company has a stock issue that pays a fixed dividend of $3.00 per share annually. Investors believe the nominal risk-free rate is 4 percent and that this stock should have a risk premium of 6 percent. What should be the value of this stock?