# 13) A \$1,000 face value corporate bond with a 6.75 percent coupon

June 7, 2016

Question
13) A \$1,000 face value corporate bond with a 6.75 percent coupon (paid semiannually) has 10 years left to maturity. It has had a credit rating of BB and a yield to maturity of 8.2 percent. The firm recently became more financially stable and the rating agency is upgrading the bonds to BBB. The new appropriate discount rate will be 7.1 percent. What will be the change in the bond’s price in dollars and percentage terms? (round to 3 decimal places)

3) You plan to purchase an \$80,000 house using a 15-year mortgage obtained from your local bank. The mortgage rate offered to you is 8.00 percent. You will make a down payment of 20 percent of the purchase price. (LG 7-4)
Calculate your monthly payments on this mortgage.
Calculate the amount of interest and, separately, principal paid in the 127th payment.
Calculate the amount of interest and, separately, principal paid in the 159th payment.
Calculate the amount of interest paid over the life of this mortgage.

4)You plan to purchase a \$150,000 house using a 15-year mortgage obtained from your local credit union. The mortgage rate offered to you is 5.25 percent. You will make a down payment of 20 percent of the purchase price. (LG 7-4)
Calculate your monthly payments on this mortgage.
Construct the amortization schedule for the first six payments.

10) You plan to purchase a house for \$175,000 using a 15-year mortgage obtained from your local bank. You will make a down payment of 25 percent of the purchase price and monthly payments. You will not pay off the mortgage early. (LG 7-3)
Your bank offers you the following two options for payment:
Option 1: Mortgage rate of 5 percent and zero points.
Option 2: Mortgage rate of 4.75 percent and 2 points.
Which option should you choose?
Your bank offers you the following two options for payments:
Option 1: Mortgage rate of 4.85 percent and 2 points.
Option 2: Mortgage rate of 4.68 percent and 3 points.
Which option should you choose?

1) Suppose a firm has 15 million shares of common stock outstanding and six candidates are up for election to five seats on the board of directors. (LG 8-1)
If the firm uses cumulative voting to elect its board, what is the minimum number of votes needed to ensure election to the board?
If the firm uses straight voting to elect its board, what is the minimum number of votes needed to ensure election to the board?

2)Suppose you own 50,000 shares of common stock in a firm with 2.5 million total shares outstanding. The firm announces a plan to sell an additional 1 million shares through a rights offering. The market value of the stock is \$35 before the rights offering and the new shares are being offered to existing shareholders at a \$5 discount. (LG 8-3)
If you exercise your preemptive rights, how many of the new shares can you purchase?
What is the market value of the stock after the rights offering?
What is your total investment in the firm after the rights offering? How is your investment split between original shares and new shares?
If you decide not to exercise your preemptive rights, what is your investment in the firm after the rights offering? How is this split between old shares and rights?