3 Preferred is paid first, less risky Common stock can be traded, price could go up more Dividend can go up on common but is fixed with preferred Task 3 1 The coupon rate that AirJet Best Parts should use to sell the bonds at par value is 6.92%. INTEREST RATE what is the yield PMT 37.5 (7.5% semiannual) PV (1062.00) Interest Solve Periods 40 (20 years semiannual) Future Value 1000
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time, the company has repurchased common shares worth $153 million. So, in total, Verizon has returned over $6.1 billion to its shareholders over the past twelve months. The company has issued new debt of over $49 billion and repaid debt (in term of bonds) worth $8 billion. As a result, the net increase in total debt of the company comes close to $41 billion. The debt increase is mainly due to the acquisition of Vodafone’s stake in Verizon Wireless. Regardless of the sluggish growth rates in the industry
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(expressed as a percentage of the face value) of a one-year, zero-coupon corporate bond with a AAA rating? • b. What is the credit spread on AAA-rated corporate bonds? • c. What is the credit spread on B-rated corporate bonds? • d. How does the credit spread change with the bond rating? Why? 30. HMK Enterprises would like to raise $10 million to invest in capital expenditures. The company plans to issue five-year bonds with a face value of $1000 and a coupon rate of 6.5% (annual payments). The
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1. What is the Fisher hypothesis? Is it Valid? Explain The Fisher hypothesis (sometimes called the Fisher effect) is the proposition by Irving Fisher that the real interest rate is independent of monetary measures, specifically the nominal interest rate and the expected inflation rate. The term "nominal interest rate" refers to the actual interest rate giving the amount by which a number of shillings owed by a borrower to a lender grows over time; the term "real interest rate" refers to the amount
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(FCF) in 2013? 14. Suppose you were an investor and you were considering whether to buy a corporate bond from Joe’s Corporation or a Municipal Bond from the city of St. Louis. Joe’s corporate bond has a yield of 8%. The St Louis city bond has a yield of 6%. The income from Joe’s bond is taxable. The income from the St Louis city bond is tax-free. If your effective tax rate is 20%, which bond would give you the higher after-tax yield? 15. What was Joe’s Net Worth at the end of 2013? 16.
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Memorandum to: Accounting department of family finance co. from: Daisy subject: fair value hierarchy date: december 15, 2012 Introduction Family Finance Co. (FFC), a publicly traded commercial bank, invests in a variety of securities in order to enhance returns greater than interest paid on bank deposits and other liabilities. The primary investments of FFC are collateralized debt obligation, mortgage-backed securities, auction-rate securities, equity securities in nonpublic companies, interest
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have been in the domestic market so the foreign markets if attractive should certainly be considered. Alternatives under consideration and their costs: (Refer to the spreadsheet gemi-rjr.xls for details on the calculations) 1. Eurodollar bonds: Most straightforward method that had an all-in cost of 10.59%. (This is the IRR of the cash
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Financial Markets and Interest Rates The primary market is where economic units sell new securities to raise needed funds. Could be an Initial Public Offering (IPO) or issue of new shares of an existing publicly traded company. Investment banks will set a beginning price range for a given security and then oversee its sale directly to investors. Once the initial sale is complete, further trading is conducted on the secondary market, which is where the bulk of exchange trading occurs each
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they can be in the form of inflation, market fluctuation, economy changes, and investments. • Security (D) A security is a negotiable instrument representing a financial claim; it shows ownership of the instrument. (R) Securities are stocks and bonds used to raise funds (capital), which assists in expanding the business. • Stock (D) The proof of ownership of a corporation that is represented by
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What to do about excess cash As we saw in class nowadays there are plenty of corporations whose cash balances exceed their debt due. The question that naturally arises, is what implications do cash balances have for the WACC calculation. In answering this question, first we need to distinguish between cash used for operations and excess cash. The cash used for operations exist in a firm in order to support its daily transactions, like paying bills, employees, change in the tills etc. That means even
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