Introduction to Finance - coursework Research Paper

Introduction to Finance - coursework - Research subject Exampleary if the pursuit rate in the market goes down to 5 % the investor ordain try more than n more to get a hold on organizations seize since your bond is paying high interest rates than that prevailing in the market. Therefore the bond damages will go up. Bondprices = (60000 / 2 ) x 1 - (1+ .05 / 2 )-2x15 / ( .05 / 2) + 1,000,000 / ( 1 + .05 / 2 )2 x 15= 1104651.463 1000,000 (par value)if the bonds prices for a company are leaving higher It will add value to the name of the company and the stock prices will also go up for such a companyf)The Expected rate of reurn = dividend die + capital gain (Bearly & Myers, 2001)Dividend yield = next dividend payment / current price of the stock= Do x (1 + g) / price of the stock Here, Do = last dividend payment = 3.21g = 7%price of stock = 75.529Dividend yield = Do x (1 + g) / price of the stock= 3.21 x (1+ .07) / 75.529= .04547Capital gain yield = (P1 - Po) / Po= (73 - 75.52 9 ) / 75.529= -0.0334rate of reurn = 0.04547 - 0.0334= 0.1199 = 11.99%f)the current valuue of stockPo = Do (1+g)/(Ks-g)Po = 3.21(1+.07)/(0.1199-.07)Po = 68.83.RecommendationsCurrently the bonds of the company are being traded at $874,420. this price is genuinely much infra the par value of the stock . the bond has a coupon rate of 6% attached to it epoch the current interest rate prevailing in the market is 7.4152%. the company is fling an interest that is under the prevailing interest rate and hence the investors find a low interest in companys bond which is resulting in the decline of price. If overall interest rates in the market subsequently fall, prices of existing, higher interest-rate bonds in general will rise. Thats because the existing bonds are more attractive to buyers than new, lower interest-rate...Therefore the bond prices will go up.Currently the bonds of the company are being traded at $874,420. this price is very much below the par value of the stock . the bo nd has a coupon rate of 6% attached to it while the current interest rate prevailing in the market is 7.4152%. the company is offering an interest that is below the prevailing interest rate and hence the investors find a low interest in companys bond which is resulting in the decline of price. If overall interest rates in the market later fall, prices of existing, higher interest-rate bonds generally will rise. Thats because the existing bonds are more attractive to buyers than new, lower interest-rate bonds and, as a result, are typically offered at higher prices (seligman, 2007). This debt through bonds make the firm risky since it is covering 50% of the total rrquirement by APEX. APEX requires a total financing of $2,000,000 and the bond are issued for $1,000,000. Covering half of your financing fate through debt exposes the organization to greater risk and reduces the credibility of investors towards organization. Mr. Thinkard should wait for time when the interest rates in the market falls below the coupon rate on bonds. this will cause increase in bond price and Mr.