Course Project – Part I © The content of this document is the property of Wendell W. Bragg and DeVry University. No portion of this document may be reproduced in any manner except as a homework assignment submission. Duplication, reproduction or display either physically or electronically for any other purpose without the author’s written consent is prohibited. Introduction The Course Project is an opportunity for you to apply concepts learned to a real-life simulation experience. Throughout the Course Project, you will assume that you work as a financial analyst for Aero Plain, Inc. The Course Project is provided in two parts as follows: Part I – In Part I, you work with Aero Plain, Inc. staff to identify the best loan …show more content…
What are the monthly payments and the total of the payments on this loan? Does this new information change your previous decision? Show your calculations and explain your rationale. (20 pts) 7,500,000/47= 159,574 Task 2: Bond Evaluation Aero Plain, Inc. is also considering the issue of new, 20-year bonds to obtain the needed funds for the new plant in Mexico. The company currently has 6.5% semiannual coupon bonds in the market selling for $1,052 that mature in 20 years. 1. What coupon rate should Aero Plain set on its new bonds so that the selling price is equal to the par value? Show your calculations and explain. (10 pts) The company should set the coupon rate on its new bonds equal to the required returns. And the rate to be is 6.90 2. What is the difference between the coupon rate and the YTM of bonds? (10 pts) Coupon rate is fixed and determines what the bonds coupon will be. The required return is what investor actually demands on the issue and it will fluctuate through time. 3. What factors will contribute to the riskiness of these bonds? Please explain. (10 pts) The minimum interest rate risk and the default risk. 4. What type of positive and negative covenants might Aero Plain use in future bond issues? (10 pts) A positive covenant would reduce the coupon rate. The negative side is that the company is restricted in its actions, and the positive covenant may force the company into actions in the future that
* b.Assume the firm’s stock now sells for $20 per share. The company wants to sell some 20-year, $1,000 par value bonds with interest paid annually. Each bond will have attached 50 warrants, each exercisable into 1 share of stock at an exercise price of $25. The firm’s straight bonds yield 12%. Assume that each warrant will have a market value of $3 when the stock sells at $20. What coupon interest rate, and dollar coupon, must the company set on the bonds with warrants if they are to clear the market? (Hint: The convertible bond should have an initial price of $1,000.)
1(a) Regular Treasury bonds are purchased at face value in the beginning or an adjusted price prior maturity. And in every period, normally annul or semiannual, investor will receive a coupon as an interest and at the maturity a principal plus coupon.
At what price will the bonds issue? (Do not round PV factors. Round your answer to the nearest dollar amount. Omit the "$" sign in your
1.00 point A bond with a 7-year duration is worth $1,073, and its yield to maturity is 7.3%. If the yield to maturity falls to 7.21%, you would predict that the new value of the bond will be approximately _________.
Assuming the market interest rate on the issue date is 7%, the bonds will issue at $200,000. Record the bond issue on January 1, 2012, and the first two semi-annual interest payments on June 30, 2012, and December 31, 2012.
The Yield to Maturity (YTM) of a bond is: Interest rate that makes the present value of the bond’s
What coupon rate should AirJet Best Parts set on its new bonds to sell them at par value?
You may use a number of sources, but we recommend Morningstar. Find the YTM of one 15 or 20 year bond with the highest possible creditworthiness. You may assume that new bonds issued by AirJet Best Parts, Inc. are of similar risk and will require the same return. (5 pts)
a. the same amount of interest expense being recognized over the term of the bonds
Then third parameter is coupon payment of $60 and the fourth parameter is principal of $1000. This value that was determined to be the price of the bond at a 7.5% discount rate is $920.55.
Answer: YTM should be used because it is the rate of return anticipated on a bond if it is held to maturity. The calculation of YTM takes into account the purchase price, redemption value, time to maturity, coupon yield, and time between
If Target issues 9% coupon bonds on 1/1/18 for $12,775,000 due 12/31/22 with semiannual interest payments on July 1st and December 31st, the company would receive $15,011,152 on the date of issuance (1/1/18). The present value of $15,011,152 was calculated using payments of $574,875 every 6 months, compounding for 10 periods, at the rate of 2.5% per period.
So, the 20 year corporate bond interest rate associated with the company’s rating is 3.86.
Describe the differences in interest payments and bond price between a 5 percent coupon bond and a zero coupon bond.