Suggested answers to HW questions from Ch. 05
5-7
The problem asks you to find the price of a bond, given the following facts:
N = 16; I/YR = 8.5/2 = 4.25; PMT = 50; FV = 1000.
With a financial calculator, solve for PV = $1,085.80
5-9
a.
1. 5%:
Bond L:
Bo
FIN 3023 Exam 1 review: What weve learned in the first 5 chapters and why?
Big picture goals:
Understanding Financial markets and Institutions
o Why are they important? (chapter 1 & 2)
o Financial institutions are like any other business in that they want
Suggested answers to HW questions from Ch. 19
19-1
First issue: 20-year straight bonds with an 8% coupon.
Second issue: 20-year bonds with 6% annual coupon with warrants. Both bonds
issued at par $1,000. Value of warrants = ?
First issue: N = 20; PV = -10
Suggested answers to HW questions from Ch. 15
15-1
QBE = F/(P V) = $500,000/($75 - $50) = 20,000.
15-2
If wd = 0.2, then wce = 1 0.2 = 0.8. So D/S = wd/we = 0.2/0.8.
bU = b/[1 + (1-T)(D/S)]
= 1.15/[1 + (1-0.40)(0.2/0.8)] = 1.0.
15-3
If the company had no
Suggested answers to HW questions from Ch. 14
14-6
Retained earnings = Net income (1 - Payout ratio)
= $5,000,000(0.55) = $2,750,000.
External equity needed:
Total equity required = (New investment)(1 - Debt ratio)
= $10,000,000(0.60) = $6,000,000.
New ex
Suggested answers to HW questions from Ch. 11
11-5
a. The applicable depreciation values are as follows for the two scenarios:
Year
1
2
3
4
Scenario 1
(Straight Line)
$200,000
200,000
200,000
200,000
Scenario 2
(MACRS)
$264,000
360,000
120,000
56,000
b. T
Suggested answers to HW questions from Ch. 09
9-9
Enter these values: N = 60, PV = -515.16, PMT = 30, and FV = 1000, to get I =
6% = periodic rate. The nominal rate is 6%(2) = 12%, and the after-tax
component cost of debt is 12%(0.6) = 7.2%.
9-10
a. rs =
Suggested answers to HW questions from Ch. 07
7-6
The problem asks you to determine the constant growth rate, given the following
facts: P0 = $80, D1 = $4, and rs = 14%. Use the constant growth rate formula to
calculate g:
D1
=
+g
r
P0
$4
0.14 =
+g
$80
g
FIN 3023, Homework assigned from the class example
1. A Spanish bond with 2 years left to maturity date pays 15% annual coupon and has a par value =
$1000. The probability of default in the 1st year = 10%. There is 1/3 chance the bond will default in
year