Question 1:

The Harding Corporation has $50.6 million of bonds outstanding that were issued at a coupon rate of 13.25 percent seven years ago. Interest rates have fallen to 12 percent. Preston Alter, the vice-president of finance, does not expect rates to fall any further. The bonds have 18 years left to maturity, and Preston would like to refund the bonds with a new issue of equal amount also having 18 years to maturity. The Harding Corporation has a tax rate of 25 percent. The underwriting cost on the old issue was 3.1 percent of the total bond value. The underwriting cost on the new issue will be 1.8 percent of the total bond value. The original bond indenture contained a five-year protection against a call, with an 8 percent call premium starting in the sixth year and scheduled to decline by one-half percent each year thereafter (Consider the bond to be seven years old for purposes of computing the premium). Use Appendix D.

a. Compute the discount rate. (Round the final answer to 2 decimal places.

Discount rate _____%

b. Calculate the present value of total outflows. (Enter the answers in whole dollars, not in millions. Round "PV Factor" to 3 decimal places. Do not round intermediate calculations. Round the final answer to nearest whole dollar.)

Total outflows_________ $

c. Calculate the present value of total inflows. (Enter the answers in whole dollars, not in millions. Round "PV Factor" to 3 decimal places. Do not round intermediate calculations. Round the final answer to nearest whole dollar.)

Total inflows_______ $

d. Calculate the net present value. (Enter the answers in whole dollars, not in millions. Round "PV Factor" to 3 decimal places. Do not round intermediate calculations. Round the final answer to nearest whole dollar. Negative amount should be indicated by a minus sign.)

Net present value_______$

Question 2:

The Milken Investment Fund buys 66 bonds of the Levine Corporation through its broker. The bonds pay 12 percent annual interest. The yield to maturity (market rate of interest) is 16 percent. The bonds have a 10-year maturity. Assume the par value of the bonds is $1,000. Using an assumption of semiannual interest payments, (Use a Financial calculator to arrive at the answers. Enter positive values as answers. Round the final answers to 2 decimal places.)

a. Compute the price of the bond.

Price of the bond $

b. Compute the total value of the 66 bonds.

Total value $