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of what real rate of return investors are expecting in today's marketplace. He has looked up the rate paid on 3-month U.S. Trea
found it to be 5.5%. He has decided to use the rate of change in the Consumer Price Index as a proxy for the inflationary expec
investors. That annualized rate now stands at 3%. On the basis of the information that Carl has collected, what estimate can he
real rate of return?
Solution: Rⅎ - IP
P6-10 Bond interest payments before and after taxes Charter Corp. has issued 2,500 debentures with a total principal val
The bonds have a coupon interest rate of 7%.
a. What dollar amount of interest per bond can an investor expect to receive each year from Charter?
Total principal value $2,500,000/2,500 # of debentures = $1,000 Face value of debenture
$1000*7%=$70 dollar amount interest per bond each year
b. What is Charter's total interest expense per year associated with this bond issue?
$2,500,000*7%= $175,000 Charter's total yearly interest expense
c. Assuming that Charter is in a 35% corporate tax bracket, what is the company's net after-tax interest cost associat
bond issue?
$175,000*35%=$61,250
$175,000-$61,250=$113,750= Company's after tax cost
P6-13 Valuation of assets Using the information provided in the following table, find the value of each asset.
P6-20 Yield to maturity The relationship between a bond's yield to maturity and coupon interest rate can be used to predi
state whether the price of the bond will be at a premium to par, at par, or at a discount to par.
A 6% 10%
B 8 8
C 9 7
D 7 9
E 12 10
anking firm, is trying to get an idea
aid on 3-month U.S. Treasury bills and
or the inflationary expectations of
ed, what estimate can he make of the
f each asset.
ate can be used to predict its pricing level. For each of the bonds listed,