Answer the following questions and put calculations: 10. Each year a company is
ID: 2791303 • Letter: A
Question
Answer the following questions and put calculations:
10. Each year a company is required to place money into a bank account to retire its bond's principal at maturity. If the bond's principal is $10 million, and bank interest is estimated at 8%, how much are the annual payments if they are to be made over the last 20 years of the bond's life?
a.$101,853
b.$218,522
c.$462,950
d.$425,387
15. A bond is available for purchase that has a face value of $10,000, an 8% coupon, payable semiannually, and 20 years of its original 25 years left to maturity. Approximately how much would you pay for the bond if the market return on similar bonds is 10%?
a.$8,184.60
b.$8,296.88
c.$8,283.64
d.$8,174.36
16. A $1,000 par value convertible bond has a conversion price of $25. It is currently selling for $1,200, despite the fact that the bond’s coupon rate and the market interest rate are equal. The common stock obtained upon conversion is selling for $27 per share. What is the convertible bond’s conversion ratio?
a.37
b.40
c.48
d.200
21. The price of a share of stock today is $25.00. If the return on the share is estimated at 18% and the stock generally pays a dividend of $1 per year, what is its projected selling price in one year?
a.$22.30
b.$30.00
c.$28.50
d.$29.50
Explanation / Answer
10 Option A
=PMT(8%,20,1000000)=101853
15 Option C
Coupons=8%*10000/2=400
Price=400/1.05+400/1.05^2.............400/1.05^40+10400/1.05^40=8283.64
16 Option B
Conversion ratio=Face Value/Conversion Price=1000/25=40
21 Option C
Return=(Price next year+dividend-25)/25
=>18%=(Price next year+1-25)/25
=>Price next year=28.5
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