corporate finance

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1. Canon Corporation recently issued 10–year bonds at a price of Rs. 1,000. These bonds pay Rs. 60 in interest each six months. Their price has remained stable since they were issued, i.e., they still sell for Rs. 1,000. Due to additional financing needs, the firm wishes to issue new bonds that would have a maturity of 10 years, a par value of Rs. 1,000, and pay Rs. 40 in interest every six months. If both bonds have the same yield, how many new bonds must JRJ issue to raise Rs. 2,000,000 cash? 2. The 10 year, 12 percent semiannual coupon bond, with a par value of $ 1000, may be called in 4 years at a call price of $ 1,060. The bond sells for $ 1,100. (Assume that the bond has just been issued.) a. What is the bond’s yield to maturity? b. What is the bond’s current yield? c. What is the bond’s capital gain or loss yield? d. What is the bond’s yield to call? 3. Suppose you purchase a zero coupon bond for $214.55 with a face value of $1,000 maturing in twenty years. If the yield to maturity (YTM) on the bond is 8.00%, what will the price of the bond be at the end of five years from now? (zero coupon bond) 4. A bond for Ballhawkers, Inc. has a coupon rate of 7%. The yield to maturity is 6.8%. The bond has a remaining life of 30 years and makes semi-annual coupon payments? What is this bond’s current market value? YTM

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Transcript of corporate finance

1. Canon Corporation recently issued 10year bonds at a price of Rs. 1,000. These bonds pay Rs. 60 in interest each six months. Their price has remained stable since they were issued, i.e., they still sell for Rs. 1,000. Due to additional financing needs, the firm wishes to issue new bonds that would have a maturity of 10 years, a par value of Rs. 1,000, and pay Rs. 40 in interest every six months. If both bonds have the same yield, how many new bonds must JRJ issue to raise Rs. 2,000,000 cash?2. The 10 year, 12 percent semiannual coupon bond, with a par value of $ 1000, may be called in 4 years at a call price of $ 1,060. The bond sells for $ 1,100. (Assume that the bond has just been issued.)a. What is the bonds yield to maturity?b. What is the bonds current yield?c. What is the bonds capital gain or loss yield?d. What is the bonds yield to call?3. Suppose you purchase a zero coupon bond for $214.55 with a face value of $1,000 maturing in twenty years. If the yield to maturity (YTM) on the bond is 8.00%, what will the price of the bond be at the end of five years from now? (zero coupon bond)4. A bond for Ballhawkers, Inc. has a coupon rate of 7%. The yield to maturity is 6.8%. The bond has a remaining life of 30 years and makes semi-annual coupon payments? What is this bonds current market value?YTMQ1. The Honey Company's bonds have 4 years remaining to maturity. Interest is paid annually; the bonds have a $ 1,000 par value; and the coupon interest rate is 9 percent.a. What is the yield to maturity at a current market price of (1) $ 829 or (2) $ 1,104?b. What you pay $ 829 for one of these bonds if you thought that the appropriate rate of interest was 12 percent that is, if Kd = 12%? Explain your answer.Q2. Six years ago, Sing-tech Company sold a 20-year bond issue with a 14 percent annual coupon rate and a 9 percent call premium. Today, Sign-tech called the bonds. The bonds originally were sold at their face value of $ 1,000. Compute the realized rate of return of investor who purchased the bonds when they were issued and who surrender them today in exchange for the call price.Q3. The 10 year, 12 percent semiannual coupon bond, with a par value of $ 1000, may be called in 4years at a call price of $ 1,060. The bond sells for $ 1,100. (Assume that the bond has just been issued.)a. What is the bonds yield to maturity?b. What is the bonds current yield?c. What is the bonds capital gain or loss yield?d. What is thebonds yield to call?