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Bond Valuation And Stock Return Calculations: A Comprehensive Financial Analysis

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Bond Valuation and Stock Return Calculations: A Comprehensive FinancialAnalysisHomework 28 questions1.If the coupon rate is less than the yield to maturity, the bond will:a. sell at parb. sell at premiumc. sell at discountAnswer: c. sell atdiscount2. ABC Inc. issued twelve-year, 6 percent semi-annual coupon bonds at par. Today, the bondsare priced at $1112. What is the firm’s after-tax cost of debt if the tax rate is 30%?Step 1: Find the Yield to Maturity (YTM) for the bond.•The bondhas a 6% annual coupon rate (since it’s semi-annual, that means 3% every sixmonths).•The bond’s price is $1,112, and its face value (par value) is $1,000.•The bond has 12 years to maturity, meaning 24 semi-annual periods.The formula for the price of a bond is:P=C×(1−(1+r)−nr)+F(1+r)nP = C\times\left(\frac{1-(1 + r)^{-n}}{r}\right) +\frac{F}{(1 +r)^n}Where:•PP is the bond price ($1,112),•CC is the coupon payment ($1,000 × 6% / 2 = $30 every six months),•rris the semi-annual yield (YTM/2),•nn is the number of periods (12 years × 2 = 24 periods),•FF is the face value ($1,000).Now, we need to solve for rr, which is the semi-annual yield.

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