Question
J&M motor company has a bond with a coupon rate of 8 percent, face value of $1000, 7 years to maturity, semiannual interest payments, and
J&M motor company has a bond with a coupon rate of 8 percent, face value of $1000, 7 years to maturity, semiannual interest payments, and a YTM of 7 percent (compounded semiannually).
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What is the bond price? (3 marks)
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What is the current yield on bond? (2 marks)
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If the company wants to issue 5.4 percent preferred stock with a stated liquidating value of $100 a share. The company has determined that stocks with similar characteristics provide a return of 8.2 percent. What should the offer price be? (hint: the 5.4 percent determines the dividend paid on the
liquidating value.)
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