Fundamentals of Financial Management Eleventh Edition.docVIP

Fundamentals of Financial Management Eleventh Edition SOLUTIONS TO PROBLEMS CONTENTS CHAPTER4 The Valuation of Long-Term Securities CHAPTER5 Risk and Return CHAPTER8 Overview of Working Capital Management CHAPTER9 Cash and Marketable Securities Management CHAPTER10 Accounts Receivable CHAPTER11 Short-Term Financing CHAPTER15 Required Returns and the Cost of Capital CHAPTER16 Operating and Financial Leverage CHAPTER17 Capital Structure Determination CHAPTER18 Dividend Policy CHAPTER19 The Capital Market CHAPTER20 Long-Term Debt, Preferred Stock, and Common StockCHAPTER4 1. Price per bond $907.10 2. Price per bond $904.30 3. Current price: p0=$80.00 Later price: p0=$66.67 The price drops by $13.33 4. Rate of return = 20% 5. Present value of stock V=$22.63 6. a) $37.5 b) $30.00 c) $37.50 Either the present strategy (a) or strategy (c) both result in the same market price per share. 7. a) 8 percent b) YTC= 9.64 percent we solve for YTC by computer 8. V=$75 9. V=$689.41 10. a) g = 0.05 b) expected dividend yield = 0.07 c) expected capital gains yield =g= 0.05 11. a) semiannual yield = 0.0402 b) 0.0804 c) effective annual yield = 0.0820 12. a) trying a 4 percent semiannual YTM as a starting point for a trial-and-error approach, we get P0 = $ 1,067.55 Since $1,067.55 is less than $1,120, we need to try a lower discount rate, say 3 percent P0 = $ 1,223.47 To approximate the actual discount rate, we interpolate between 3 and 4 percent, X =0.0066 In addition, semiannual YTM= 0.03 +0.0066 = 0.0366, or 3.66 percent. (The use of a computer provides a precise semiannual YTM figure of 3.64 percent.) b) semiannual YTM * 2 = nominal YTM nominal YTM = 0.0732 C) effective annual YTM = 0.0754 13. a) old Chicago’s 12-year bonds should show a greater price change than Red Frog’s bonds. With everything, the same except for maturity, the longer th