#9 please thank you rate of 12 percent interest. You would like to know the effe

Question

#9 please thank you

rate of 12 percent interest. You would like to know the effective rate of interest for the following types of loans. (Each of the following parts stands alone.) a) Simple 12 percent interest with a 15 percent compensating balance b) Discounted interest, with no compensating balance 9) The Federal Motors Company has a $1,000 par value bond outstanding that pays 8 percent annual interest. The current yield to maturity on such bonds in the market is 10 percent. Compute the price of the bonds for these maturity dates a) 20 years. b) 10 years 10) BMT Corporation recently issued preferred stock with a par value of $60 that pays a 7.5% annual dividend. If the stock currently yields 10%, what is its market value (price)? 1)AWM Corporation expects its common stock dividend to grow at a constant 5 percent for he foreseeable future. The company recently paid a $4.00 dividend. If the required rate of eturn on the company's stock is 11 percent, what is the value (price) of the stock today?

Explanation / Answer

ANSWER = Step 1 : Calculation of Annual Coupon Payments Par value of the bond issued is   = $1,000 Annual Coupon % 8.00% Annual Coupon Amount $80 Step 2: Calculate number of years to Maturity Number of years to maturity = 20 years Step 3 : Yield to Maturity = 10%, So discount rate = 10% PVF = 1 / Discount rate = 1/ 1.10 Result of above will again divide by 1.10 , repeat this till last period Option 1= Life of the bond is 20 years CALCULATION OF CURRENT MARKET PRICE OF THE BOND OR PURCHASE PRICE Years Interest Amount PVF @ 10% PresentValue 1 Interest $80.00                     0.9091 $72.73 2 Interest $80.00                     0.8264 $66.12 3 Interest $80.00                     0.7513 $60.11 4 Interest $80.00                     0.6830 $54.64 5 Interest $80.00                     0.6209 $49.67 6 Interest $80.00                     0.5645 $45.16 7 Interest $80.00                     0.5132 $41.05 8 Interest $80.00                     0.4665 $37.32 9 Interest $80.00                     0.4241 $33.93 10 Interest $80.00                     0.3855 $30.84 11 Interest $80.00                     0.3505 $28.04 12 Interest $80.00                     0.3186 $25.49 13 Interest $80.00                     0.2897 $23.17 14 Interest $80.00                     0.2633 $21.07 15 Interest $80.00                     0.2394 $19.15 16 Interest $80.00                     0.2176 $17.41 17 Interest $80.00                     0.1978 $15.83 18 Interest $80.00                     0.1799 $14.39 19 Interest $80.00                     0.1635 $13.08 20 Interest $80.00                     0.1486 $11.89 20 Bond Value $1,000.00                     0.1486 $148.64 Total $829.73 Market Value of the Bond = $830 (Round off) Option 2= Life of the bond is 10 years CALCULATION OF CURRENT MARKET PRICE OF THE BOND OR PURCHASE PRICE Years Interest Amount PVF @ 10% PresentValue 1 Interest $80.00                     0.9091 $72.73 2 Interest $80.00                     0.8264 $66.12 3 Interest $80.00                     0.7513 $60.11 4 Interest $80.00                     0.6830 $54.64 5 Interest $80.00                     0.6209 $49.67 6 Interest $80.00                     0.5645 $45.16 7 Interest $80.00                     0.5132 $41.05 8 Interest $80.00                     0.4665 $37.32 9 Interest $80.00                     0.4241 $33.93 10 Interest $80.00                     0.3855 $30.84 10 Bond Value $1,000.00                     0.3855 $385.54 Total $877.11 Market Value of the Bond = $877 (Round off)

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