Project #57293 - Module 4 Team Assignment

Module 4 Team Assignment

·         Submit answers in Word document format.

·         Please write the answers in your own words – do not paraphrase contents from PowerPoint lecture, textbook, and articles or from any outside sources.

·         Please do not share answers with other teams.

 

Problems (150 points)

·         (20 points). Chapter 6, problems 6-1 and 6-2

 

6-1  Intercontinental Baseball Manufacturers (IBM) has an outstanding bond with a $1,000 face value that matures in 10 years. The bond, which pays $25 interest every six months ($50 per year), is currently selling for $598.55. What is the bond’s yield to maturity?

 

6-2  Rick bought a bond when it was issued by Macroflex Corporation 14 years ago. The bond, which has a $1,000 face value and a coupon rate equal to 10 percent, matures in six years. Interest is paid every six months; the next interest payment is scheduled for six months from today. If the yield on simi- lar risk investments is 14 percent, what is the current market value (price) of the bond

 

·         (50 points). Anadarko Bond Pricing: Assume, you are the financial manager of Anadarko Petroleum. You have decided to sell new bonds to fund a new petroleum project. You would like to make an interest payment of $65 per year per bond on a face value of $1,000. The bonds will mature 30 years from today. From the Bond Center in http://finance.yahoo.com/, identify a comparable bond issued by Anadarko that has maturity closest to 30 years. Comparable firms can be Apache Inc., Devon Energy, and Marathon Oil. Use YTM (i.e., yield to maturity or market interest rate) for that comparable bond issue to price Anadarko’s new bond. [To access bond data, click on Market Data, click on Bonds, click on Bond Screener, select Corporate Bond, and look for a comparable bond on the list]

·         (30 points). Provide a 1-page summary of pages 13-23 of the article “Capital Structure Decision”. Please elaborate on factors that are considered when a firm sells (i.e., issues) debt securities or bonds (i.e., borrows money long-term). This information is given in Figure 2.

 

·         (50 points). Please provide a 2-page summary of “Bond Primer”. Please address all key concepts (types of bonds, relationship between yield and price, reducing risk, bond rating, etc.) in that document.

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Due By (Pacific Time) 02/15/2015 12:00 pm
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