Part_III: Work out questions

A. You just bought a corporate bond at $863.75 today. In five years the bond will mature and you will receive $1,000. What is the rate of return on this bond? (3-pts)

B. Hyundai Motors has a target capital structure of 40 percent debt and 60 percent equity. The yield to maturity on the companys outstanding bonds is 9 percent, and the companys tax rate is 40 percent. Hyundais CFO has calculated the companys WACC as 9.96 percent. What is the companys cost of common equity? (3-pts)

C. Calculate the after-tax cost of debt under each of the following conditions: (3-pts)

o Interest rate, 13 percent; tax rate, 0 percent

o Interest rate, 13 percent; tax rate, 20 percent

o Interest rate, 13 percent; tax rate, 35 percent

D. Thomas Brothers is expected to pay a $0.50 per share dividend at the end of the year (i.e., D1=$0.50). The dividend is expected to grow at a constant rate of 7 percent a year. The required rate of return on the stock, ks, is 15 percent. What is the value per share of the companys stock? (3-pts)

E. Your birthday is coming up, and instead of any presents, your parents promised to give you $1,000 in cash. Since you have a part time job and thus dont need the cash immediately, you decide to invest the money in a bank CD that pays 5.2 percent quarterly for the next two years. How much money can you expect to gain in this period of time?