Castle Company’s pension fund projected that a significant number of its employees would take advantage of a retirement program the company plans to offer in 10 years. Anticipating the need to fund these pensions, the firm bought zero coupon Government of Canada bonds maturing in 10 years. When these instruments were originally issued, they were 6% semiannual 30-year bonds. The stripped bonds are currently priced to yield 3.75%. Their total maturity value is $18,000,000. What is their total cost (price) to Castle today?
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Castle Company’s pension fund projected that a significant number of its employees would take advantage of a retirement program the company plans to offer in 10 years. Anticipating the need to fund these pensions, the firm bought zero coupon Government of Canada bonds maturing in 10 years. When these instruments were originally issued, they were 6% semiannual 30-year bonds. The stripped bonds are currently priced to yield 3.75%. Their total maturity value is $18,000,000. What is their total cost (price) to Castle today?
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- The Virginia Corporation recently issued 10-year bonds at a price of $1,000. These bonds pay $60 in interest each six months. Their price has remained stable since they were issued. i.e. they still sell for $1,000. Due to additional financing needs, the firm wishes to issue new bonds that would have a maturity of 10 years, a par value of $1,000 and pay $40 in interest every six months. If both bonds have the same yield, how many new bonds must the company issue to raise $2,000,000 cash?Orange Ltd is a AAA credit rating company and plans to raise new capital for its new project. The company will use both debt and equity instruments to fund the new project. Orange Ltd will issue 100 new units, 10-year bonds, each bond with a face value of $1000. Each bond will pay a 10% per annum coupon to be paid semi-annually. Currently each bond can be purchased at a price of $950. Previously, Orange Ltd had never issue bonds. Orange Ltd will issue 100 new units of ordinary shares to add to the current 900 units. The current share has a price of $30 each with last year’s dividend at $1.50 per share. The growth rate for earnings and dividends is estimated to be 10% per annum. Orange Ltd will issue 200 new units of preference shares is currently selling at $45 per share to add to the current 800 shares. The preference shares carry a yearly dividend of $4.00 per share. The flotation costs are 1% of the selling price for the preference shares. The relevant corporate tax rate is 30%.…Orange Ltd is a AAA credit rating company and plans to raise new capital for its new project. The company will use both debt and equity instruments to fund the new project. Orange Ltd will issue 100 new units, 10-year bonds, each bond with a face value of $1000. Each bond will pay a 10% per annum coupon to be paid semi-annually. Currently each bond can be purchased at a price of $950. Previously, Orange Ltd had never issue bonds. Orange Ltd will issue 100 new units of ordinary shares to add to the current 900 units. The current share has a price of $30 each with last year’s dividend at $1.50 per share. The growth rate for earnings and dividends is estimated to be 10% per annum. Orange Ltd will issue 200 new units of preference shares is currently selling at $45 per share to add to the current 800 shares. The preference shares carry a yearly dividend of $4.00 per share. The flotation costs are 1% of the selling price for the preference shares. The relevant corporate tax rate is 30%.…
- Suppose Huron Corp. must make a $50 million pension payment every year for the next 5 years. Huron decides to immunize the payment with investments in 2 year and 5 year zeros. The interest rate is 4%. If each bond in the market has a face value of S10,000, how many 5 year bonds will they purchase? A) Approximately 8900 B) Approximately 1200 C) Approximately 8395 D) Approximately 6727Kiss Greetings planned to raise $500,000 by issuing bonds. The bond certificates were printed bearing a stated interest rate of 6%, which was equal to the yield rate of interest. However, before the bonds could be issued, economic conditions forced the yield rate up to 7%. If the life of the bonds is 10 years and interest is paid annually on December 31, how much will the company receive from the sale of the bonds? Group of answer choices Less than $500,000 because the 7% yield rate of interest was higher than the stated rate. The 6% bonds will not be sold at all. The company will be required to have the certificates reprinted bearing the new yield rate of 7%. Exactly $500,000 because the company would still pay interest at the stated rate. More than $500,000 because the 6% stated rate of interest was less than the yield rate.Sain and Lewis Investment Management (SLIM), Inc. is considering the purchase of a number of bonds to be issued by Southeast Airlines. The bonds have a face value of $10,000 with an interest rate of 7.5% payable annually. The bonds will mature 10 years after they are issued. The issue price is expected to be $8750. Determine the yield to maturity (IRR) for the bonds. If SLIM Inc. requires at least a 10% return on all investments, should the firm invest in the bonds?
- Luther Industries needs to raise $25 million to fund a new office complex. The company plans on issuing ten-year bonds with a face value of $1000 and a coupon rate of 6.6% (annual payments). The following table summarizes the YTM for similar ten-year corporate bonds of various credit ratings: Rating AAA AA A BBB BB YTM 6.73% 6.93% 7.03% 7.43% 7.93% Assuming that Luther's bonds receive a AAA rating, the price of the bonds will be closest to: O A. $1,189 O B. $1,387 O C. $991 O D. $793An insurance company must make a payment of $19,487 in seven years. The current yield curve in the market is flat at 10% per annum for all maturities. The company’s portfolio manager wishes to fully fund this obligation using a two-bond portfolio that is composed of two bonds: (1) a three-year zero-coupon bond and (2) a perpetuity paying annual coupons. (b) To immunize the company’s obligation, what should be the total market value of the three-year zero-coupon bond in the two-bond portfolio now? What is the total face value of the three-year zero-coupon bonds in the two-bond portfolio? (c) Carefully explain why bond duration is lower for a bond with high coupons than for a bond with low coupons, assuming that all other characteristics of the bonds are the same. (d) If the yield to maturity of a 10-year zero-coupon bond is up by 50 basis points from…Bonita Corporation, having recently issued a $20,062,200, 15-year bond issue, is committed to make annual sinking fund deposits of $620,000. The deposits are made on the last day of each year and yield a return of 10%. Will the fund at the end of 15 years be sufficient to retire the bonds? If not, what will the deficiency be?
- Luther Industries needs to raise $25 million to fund a new office complex. The company plans on issuing ten-year bonds with a face value of $1000 and a coupon rate of 6.5% (annual payments). The following table summarizes the YTM for similar ten-year corporate bonds of various credit ratings: Rating AAA AA A ВВВ BB YTM 6.6% 6.8% 6.9% 7.3% 7.8% Assuming that Luther's bonds receive a AAA rating, the number of bonds that Luther must issue to raise the needed $25 million is closest to: OA. 30,216 B. 25180 OC. 35,252 OD. 20,144Corral Industries has decided to borrow money by issuing perpetual bonds with a coupon rate of 8.5 percent, payable annually. The one-year interest rate is 8.5 percent. Next year, there is a 40 percent probability that interest rates will increase to 10 percent, and there is a 60 percent probability that they will fall to 6 percent. If the company decides instead to make the bonds callable in one year, what coupon will be demanded by the bondholders for the bonds to sell at par? Assume that the bonds will be called if interest rates fall and that the call premium is equal to the annual coupon. a) 8.12% b) 8.77% c) 8.59% d) 8.35%Petron needs to raise $50,000 for capital expansion of its plant. The company issues ten year bonds to raise the money. The bonds are redeemable at 102. The rate of interest on the bond, r, is 3.43% payable quarterly. If at the time of the bond issue interest rates, i, are 2.31% compounded quarterly, what amount of money will the company received from the bond issue? *