13) A 15-year, zero-coupon bond is currently trading at $958. What will be the c

Question

13) A 15-year, zero-coupon bond is currently trading at $958. What will be the capital gain on this boncd next year? 14) WACC for IBM is 12%. IBM's 15-year, zero-coupon bond is currently trading at S958. IBM's tax rate is 35%. IBM's Beta is 1.2, US-government risk-free rate is 4%. US stock market is expected to return 16% next year. What is the %debt/%assets for IBM? 15) You have a choice of buying a Honda or Fiat Honda costs $35,000, lasts for 10 years. Fiat costs $22,000, lasts for 8 years. Annual maintenance cost for Honda is $4,000, and $6,000 for Fiat Cost of financing is 12%. Should you buy Honda or Fiat? 16) IBM's monthly stock price in 2014 are given below. What is the monthly average return of IBM2 What is the monthly standard deviation?

Explanation / Answer

13.

Yield rate on Zero coupon bond = [($1,000 / $958) ^ ( 1 / 15)] - 1

= [1.0438 ^ (1 / 15)] - 1

= 1.0029 - 1

= 0.29%

Yield on zero coupon bond is 0.29%.

Capital gain next year = $958 × 0.29%

= $2.74

Capital gain on zero coupon bond next year will be $2.74.

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