FIN3004_2017_lecture08_ans for p36-38.ppt

FIN3004_2017_lecture08_ans for p36-38.ppt - FIN 3004...

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1 FIN 3004 Corporate Finance Lecture 8 The Many Kinds of Debt Answers for Slide 36-38 Students please use the “slide show” function of MS PPT to show the animation of the following slides to learn the calculation steps Ch 15
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Tutorial Q7 t t r) (1 F r r) (1 1 - 1 C Value Bond Assume par value = $1,000; interest rate one year later will keep on (a) If this is a normal bond, what is the bond price today? $100 $... $... 0 R 0 =10% 1 P1= ? P0=? (b) If this is a callable bond, what is the bond price today? Call price = Call premium + par value Call premium can also be expressed as% (e.g. 15%, i.e. 150/1,000) A No Tax Solutions for (a): $100 is perpetual. PV= C/r 0.4: r=12% 0.6: r= 7% =$ 100 + Expected value of perpetual CF 0.4* 100/0.12 + 0.6* 100/0.07 = 1190.47 P1=1290.47 P0= 1290.47 / (1+ R 0 )= P0= 1290.47 / (1+ 0.1)= 1173.15 1173.15 1173.15 1173.15
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Tutorial Q7 t t r) (1 F r r) (1 1 - 1 C Value Bond Assume par value = $1,000; interest rate one year later will keep on (a) If this is a normal bond, what is the bond price today?
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