Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Chapter 24, Problem 16PS
Summary Introduction
To determine: The manner in which a sharp variation in rates of interest, newly issued bonds usually sell at yield vary from those of outstanding bonds of the same quality.
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General Finance Question
Consider the following simplified financial statements for the Yoo Corporation (assuming no income taxes):
Income Statement
Balance Sheet
Sales
Costs
$ 40,000 Assets
34,160
$26,000
Debt
Equity
$ 7,000
19,000
Net income $ 5,840
Total
$26,000
Total
$26,000
The company has predicted a sales increase of 20 percent. Assume Yoo pays out half of net income in the
form of a cash dividend. Costs and assets vary with sales, but debt and equity do not.
Prepare the pro forma statements. (Input all amounts as positive values. Do not round intermediate
calculations and round your answers to the nearest whole dollar amount.)
Pro forma income statement
Sales
Costs
$ 48000
40992
Assets
$ 31200
Pro forma balance sheet
Debt
7000
Equity
19000
Net income
$ 7008
Total
$ 31200
Total
30304
What is the external financing needed? (Do not round intermediate calculations. Negative amount
should be indicated by a minus sign.)
External financing needed
$
896
An insurance company has liabilities of £7 million due in 10 years' time and
£9 million due in 17 years' time.
The assets of the company consist of two zero-coupon bonds, one paying
£X million in 7 years' time and the other paying £Y million in 20 years' time.
The current interest rate is 6% per annum effective.
Find the nominal value of X (i.e. the amount, IN MILLIONS, that bond X pays
in 7 year's time) such that the first two conditions for Redington's theory of
immunisation are satisfied.
Express your answer to THREE DECIMAL PLACES.
Chapter 24 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 24 - Bond terms Select the most appropriate term from...Ch. 24 - Sinking funds For each of the following sinking...Ch. 24 - Security and seniority a. As a senior bondholder,...Ch. 24 - Prob. 4PSCh. 24 - Prob. 5PSCh. 24 - Private placements Explain the three principal...Ch. 24 - Prob. 7PSCh. 24 - Prob. 8PSCh. 24 - Convertible bonds True or false? a. Convertible...Ch. 24 - Prob. 10PS
Ch. 24 - Bond terms Bond prices can fall either because of...Ch. 24 - Prob. 13PSCh. 24 - Prob. 14PSCh. 24 - Security and seniority a. Residential mortgages...Ch. 24 - Prob. 16PSCh. 24 - Prob. 17PSCh. 24 - Call provisions a. If interest rates rise, will...Ch. 24 - Prob. 19PSCh. 24 - Covenants Alpha Corp. is prohibited from issuing...Ch. 24 - Prob. 21PSCh. 24 - Convertible bonds The Surplus Value Company had 10...Ch. 24 - Prob. 23PSCh. 24 - Convertible bonds Iota Microsystems 10%...Ch. 24 - Prob. 25PSCh. 24 - Convertible bonds Zenco Inc. is financed by 3...Ch. 24 - Tax benefits Dorlcote Milling has outstanding a 1...Ch. 24 - Convertible bonds This question illustrates that...Ch. 24 - Prob. 29PS
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What happens to my bond when interest rates rise?; Author: The Financial Pipeline;https://www.youtube.com/watch?v=6uaXlI4CLOs;License: Standard Youtube License