BUSINESS COLLEGE

The 15-year, $1,000 par value bonds of Waco Industries pay 8 percent interest annually. The market price of the bond is $1,085, and the market's required yield to maturity on a comparable-risk bond is 10 percent. a. Compute the bond's yield to maturity.
b. Determine the value of the bond to you given the market's required yield to maturity on a comparable-risk bond.
c. Should you purchase the bond?

Answers

Answer 1

Answer:

Answer:

A) YTM 7.06%

B) $847.8784

C) No I will not as it is overpriced.

Explanation:

A) the yield to maturity is calculate as the rate at which the present value of the coupon payment and maturity equals the market price.

It is done by approximation or using excel or financial calculator.

YTM using goal seek excel: 0.070630268 = 7.06%

Using this rate rounded:

Present value of the coupon payment.

$C * (1-(1+r)^(-time) )/(rate) = PV\n$

C: 1,000 x 8% = $ 80.00

time 15 years

YTM: 0.076

$80 * (1-(1+0.0706)^(-15) )/(0.0706) = PV\n$

PV $725.8798

$(Maturity)/((1 + rate)^(time) ) = PV$

Maturity: $1,000

time 15 years

YTM: 0.076

$(1000)/((1 + 0.0706)^(15) ) = PV$

PV 359.41

PV coupon $725.8798 + PV maturity $359.4110 = $1,085.2909

B) Present value of the bond at comparable-risk YTM:

$C * (1-(1+r)^(-time) )/(rate) = PV\n$

C: 1,000 x 8% = $ 80.00

time 15 years

comparable risk rate: 0.1

$80 * (1-(1+0.1)^(-15) )/(0.1) = PV\n$

PV $608.4864

$(Maturity)/((1 + rate)^(time) ) = PV$

Maturity $ 1,000.00

time 15 years

comparable risk rate: 0.1

$(1000)/((1 + 0.1)^(15) ) = PV$

PV 239.39

PV coupon $608.4864 + PV market $239.3920 = $847.8784

I will not purchase as it is overvalued:

1,085 - 847.88= 237.12

Answer 2

Answer:

Final answer:

a. The bond's yield to maturity is 8.46%. b. The value of the bond to you is $800. c. It may not be a good investment to purchase the bond.

Explanation:

a. To compute the bond's yield to maturity, we can use the formula: Yield to Maturity = (Annual Interest Payment + (Face Value - Current Price) / Number of Years) / ((Face Value + Current Price) / 2). Plug in the values we have: Annual Interest Payment = $1,000 * 8% = $80, Face Value = $1,000, Current Price = $1,085, Number of Years = 15. Yield to Maturity = ($80 + ($1,000 - $1,085) / 15) / (($1,000 + $1,085) / 2) = 8.46%.

b. To determine the value of the bond to you, we can use the formula: Value of Bond = Annual Interest Payment / Yield to Maturity. Plug in the values we have: Annual Interest Payment = $80, Yield to Maturity = 10%. Value of Bond = $80 / 10% = $800.

c. Should you purchase the bond? Since the current market price of the bond is higher than the value of the bond to you, it may not be a good investment. You would be paying more than the bond's actual value, which would lower your potential return on investment.

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Answers

Answer:

has all of these features.

Explanation:

This can be said to be a computerized system that are been used as information connection which in many cases are used in monitoring, and controlling of complex system primary used in manufacturing system and also the flow of data in floors that manufacturing are been mostly done. That it is said that a manufacturing execution system posses all the above listed characteristics ranging from providing info for job priority using relevant rules to adjusting lead time to provide customers needs. They are also seen to compile certain bill of materials, resource management and scheduling, preparing work in rogress reports and tracking production lots.

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Answers

I believe the answer would be $110,000; $50,000

Susmel Inc. is considering a project that has the following cash flow data. What is the project's payback? Year 0 1 2 3 Cash flows -$500 $150 $200 $300 2.03 years 2.25 years 2.50 years 2.75 years 3.03 years

Answers

Answer:

Payback period = 2.5 years

Explanation:

given data

Year 0 1 2 3

cash -$500 $150 $200 $300

to find out

What is the project's payback

solution

Year Cash flows Cumulative Cash flows

0 500 500

1 150 350

2 200 150

3 300 150

Payback period = Last period with a negative cumulative cash flow +(Absolute value of cumulative cash flows at that period ÷ Cash flow after that period) .........................1

put here value we get

Payback period = $2+ (150)/(300)$

Payback period = 2.5 years

Final answer:

The payback period for the project is approximately 2.75 years.

Explanation:

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To calculate the payback period, we sum the cash flows until we reach or surpass the initial investment.

In this case, the initial investment is $500, and the cash flows are: $150, $200, and $300 in years 1, 2, and 3 respectively.

By adding the cash flows together, we find that the project's payback is 2 years and 25% of year 3, which is approximately 2.75 years.

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Answers

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A local bank advertises the following deal: "Pay us $100 at the end of each year for 12 years and then we will pay you (or your beneficiaries) $100 at the end of each year forever." a. Calculate the present value of your payments to the bank if the interest rate is 4.00%.

Answers

Answer:

Present value of payments to the bank=938.51

Explanation:

The present value of the payment to the bank are an ordinary annuity i.e equal payments made at the end of each year for 16 years.

The Present value of an ordinary annuity is calculated as follows:

$Present value =PMT*([1-(1+i)^-^n])/(i)$

where PMT is the annual payment made at the end of each year=$100;

i is the interest rate or discount rate = 4%,

n=the number of years the periodic payment of 100 is to be made=12

Present value of payments to the bank = $100*([1-(1+0.04)^-^1^2])/(0.04)$ = 938.51

Dartmouth Corporation has provided its contribution format income statement for June. The company produces and sells a single product. Sales (2,800 units) $ 263,200 Variable costs 106,400 Contribution margin 156,800 Fixed costs 135,000 Operating profit $ 21,800 If the company sells 3,000 units, its total contribution margin should be closest to: $23,357. $175,600. $156,800. $168,000.

Answers

Answer:

$168,000

Explanation:

Given

Dartmouth Corporation

Contribution format Income Statement

For the month of June.

Sales (2,800 units) $ 263,200

Variable costs 106,400

Contribution margin 156,800

Fixed costs 135,000

Operating profit $ 21,800

We calculated the sales revenue and the variable costs by dividing the total costs with the number of units and multiplying it with 3000 units to get contribution margin for 3000 units.

Calculated.

Dartmouth Corporation

Contribution format Income Statement

For the month of June.

Sales ( 3000 units) ($ 263,200 / 2800) * 3000= $ 282000

Variable costs (106,400 / 2800) * 3000= $ 114000

Contribution margin $ 168,000

Fixed costs 135,000

Operating profit $ 33,000

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