Problem 3 (2 points) Marco Verratti\'s bonds currently sell for $1,175.89 with p

Question

Problem 3 (2 points) Marco Verratti's bonds currently sell for $1,175.89 with par value of $1,000.00. The bonds pay 13.00 percent coupon rate and have a 17-year maturity, but they can be called in 6 years at $1,097.00. There are no costs but the call premium and refund the bonds. In addition, assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. What is the bonds' yield to maturity? What is the bonds' yield to call? Problem 413 points) Nannini Company (NC) recently paid a $1.25 dividend per share. The dividend of NC is expected to grow by 21 percent next year, 16 percent the following year, and 11 percent the year after before growing at a constant rate of 6 percent growth that continues forever. NC's beta is 1.14, the risk-free rate of interest is 2.9 percent, and the market portfolio generates 12.25 percent rate of return. What is the stock price of NC today? Problem 5 (3 points) Leonardo Bonucci Company's financial manager is planning to estimate the company's WACC. She has acquired the following information. The company's noncallable bonds have 20 years to maturity, have a 925% annual coupon paid semiannually, a par value of $1.000, and a market price of S1075 00. The risk-free rate is 450%, the return on market is 11.50%, and the stock's beta is 1.20 The target capital structure of the company consists of 35% debt and the balance is common equity The company does not expect to issue any new common stock. The company's tax rate is 40%, what is the Leonardo Bonucci Company's WACC?

Explanation / Answer

(3) Par Value = $ 1000, Coupon Rate = 13 % per annum payable annually, Maturity = 17 years, Market Value = $ 1175.89 and Call Value = $ 1097, Time to First Call = 6 years

Annual Coupon = 0.13 x 1000 = $ 130

Let the YTM be R and YTC be Rc

Therefore, 1175.89 = 130 x (1/R) x [1-{1/(1+R)^(17)}] + 1000 / (1+R)^(17)

Using EXCEL's Goal Seek Function to solve the above equation we get:

R = 0.1071 or 10.71 % approximately

Further, 1175.89 = 130 x (1/Rc) x [1-{1/(1+Rc)^(6)}] + 1097 / (1+Rc)^(6)

Using EXCEL's Goal Seek Function to solve the above equation we get:

Rc = 0.1019 or 10.19 % approximately.

NOTE: Please raise separate queries for solutions to the remaining unrelated questions.

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