28. A Williams Company bond has a par value of $1,000 and a 6% coupon rate with

Question

28. A Williams Company bond has a par value of $1,000 and a 6% coupon rate with interest paid annually. The bond matures in 15 years. If investors require an 8% return on investments of similar risk, what is the value of a Williams Company bond? 29. Is the bond in question 28 trading at a premium or discount? What is causing it to trade above or below its par value? 30. Dale Corp. has a cost of capital of 12%. It is evaluating a capital budgeting proposal which involves the purchase of a machine which will cost $2,000. The machine is expected to generate the following cash flows: Year 1 $775 Year 2 $775 Year 3 $775 Year 4 $775 a. What is the project

Explanation / Answer

28.value of a Williams Company bond = 60/(1.08) + 60/(1.08)^2 + 60/(1.08)^3 .........1060/(1.08)^15 = $828.81 29.The bond is trading at a discount below its par value The required return is more than the coupon rate

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