QUESTION 7

1. In order to accurately assess the capital structure of a firm, it is necessary to convert its balance sheet figures from historical book values to market values. KJM Corporation's balance sheet (book values) as of today is as follows:

   Long-term debt (bonds, at par)	$23,500,000
   Preferred stock	2,000,000
   Common stock ($10 par)	10,000,000
   Retained earnings	4,000,000
   Total debt and equity	$39,500,000

   The bonds have a 9.0% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 10 years from today. The yield to maturity is 11%, so the bonds now sell below par. What is the current market value of the firm's debt?

   	a.	$20,277,827
   	b.	$25,243,825
   	c.	$22,346,993
   	d.	$20,691,660
   	e.	$23,174,659

0.5 points

QUESTION 8

1. Grossnickle Corporation issued 20-year, noncallable, 7.4% annual coupon bonds at their par value of $1,000 one year ago. Today, the market interest rate on these bonds is 5.5%. What is the current price of the bonds, given that they now have 19 years to maturity?

   	a.	$1,037.46
   	b.	$939.82
   	c.	$1,330.39
   	d.	$1,342.60
   	e.	$1,220.55

0.5 points

QUESTION 9

1. Keenan Industries has a bond outstanding with 15 years to maturity, an 8.25% nominal coupon, semiannual payments, and a $1,000 par value. The bond has a 6.50% nominal yield to maturity, but it can be called in 6 years at a price of $1,135. What is the bonds nominal yield to call?

   	a.	6.71%
   	b.	5.83%
   	c.	6.37%
   	d.	7.85%
   	e.	5.57%

0.5 points

QUESTION 10

1. Adams Enterprises noncallable bonds currently sell for $1,470. They have a 15-year maturity, an annual coupon of $85, and a par value of $1,000. What is their yield to maturity?

   	a.	4.21%
   	b.	4.25%
   	c.	3.79%
   	d.	5.01%
   	e.	3.37%

0.5 points