Kenneth R. Szulczyk
ܸܲܰ=− 2 ,000€൫ 4. 00 ݉ݎൗ€൯+
ଷ, €൫ସ.ଶହൗ€൯
(ଵା.ସ)భ +
ସ, €൫ସ.ହൗ€൯
(ଵା.ସ)మ +
ହ, €൫ହ.ൗ€൯
(ଵା.ସ)య^
ܸܲܰ= 43 , 126. 54 ݉ݎ
Answers to Chapter 7 Questions
- Both a notes payable and corporate bond are loans to the corporation. However, a bond is
standardized and allows investors to buy and sell them in the secondary markets, while a
bank usually grants a notes payable. - Bonds are a liability that could lower a corporation's tax burden. Furthermore, the
bondholders do not vote at a corporation’s stockholders meeting and thus, do not compete
with the stockholders over control of a corporation. Consequently, stockholders could earn a
higher dividend if a corporation uses bonds to expand operations. - We adjusted the calculation already for the annual yield to maturity of the discount bond,
which is:
19 559.90
360
1 0.^03270
20000
(^1360)
=$ ,
+
$ ,
=
+r TFV
PV 0 =^1
- We calculated: 1,666.67
0.06
100
=$
$
=
iFV
PV 0 =
- We calculated:
2,275.41
1 0.025
2,100
1 0.025
100
1 0.025
100
(^2) + 6 =$
$
+ +
+
$
+
+
$
PV 0 =
- We calculated:
1,564.47
1 0.1
2,100
1 0.1
100
1 0.1
100
(^2) + 6 =$
$
+ +
+
$
+
+
$
PV 0 =
- Money market securities have maturities less than a year. Thus, when the interest rate
changes, the money market securities swing less in market value as compared to the capital
market securities. - When the interest rate decreases, subsequently, the value of bonds becomes greater. Thus,
you should buy bonds now and resell them for a higher price when the interest rate
decreases. However, if you are wrong, then you lose money, or you could be holding onto
the bonds for a while. - You set up the equation as
1 ^3
$ 5 , 000
$ 4 , 500
+YTM
=. Then you use algebra to solve for theYTM, equaling 3.57%.