finance hw i need in a hr

the first two attachments are examples the third one is the spreadsheet that need to be filled out. based on the hw below

   

Complete the following problems. For assistance, you may want to refer to these examples. The Excel spreadsheet shows the calculations for the problems listed in the Word document.

 Week 08 Example Problems Week 08 Example Problems.xls.

Required: Download the Week 08 Problems Excel spreadsheetto use in completing your problems.

A firm has the following preferred stocks outstanding:PFD A: $40 annual dividend; $1,000 par value; no maturityPFD B: $95 annual dividend; $1,000 par value; maturity after twenty-five yearsIf comparable yields are 9 percent, what should be the price of each preferred stock?Given the information below, answer the following questions. A convertible bond has the following features:Principal$1,000Maturity date     20 yearsInterest             $80 (8% coupon) paid yearlyCall price            $1,050Exercise price     $65 a shareThe bond may be converted into how many shares?If comparable non-convertible debt offered an annual yield of 12 percent, what would be the value of this bond as debt?If the stock were selling for $52, what is the value of the bond in terms of stock?Would you expect the bond to sell for its value as debt (i.e., the value determined in b) if the price of the stock were $52?If the price of the bond were $960, what are the premiums paid over the bond’s value as stock and its value as debt?If the price of the stock were $35, what would be the minimum price of the bond?What is the probability that the bond will be called when the price of the stock is $52?If the price of the stock rose to $73, what would happen to the price of the bond?If the price of the stock were $73, what would the investor receive if the bond were called?

Week 08 Example Problems

Please download the Week 08 Example Problems Excel spreadsheet to assist you with the following problems.

1. A firm has the following preferred stocks outstanding:

· PFD A: $32 annual dividend; $1,000 par value; no maturity

· PFD B: $88 annual dividend; $1,000 par value; maturity after twenty years

If comparable yields are 7.5 percent, what should be the price of each preferred stock?

Solution:

Price of PFD A: $32/.075 = $426.66

Price of PFD B: = Please see the Week 08 Example Problems spreadsheet for the solution to this problem.

Point out the inverse relationship between interest rates and changes in the prices of preferred stock. Stock A’s price declined since the dividend yield (based on the par value) is 3.2 percent. Stock B’s price rose, since its yield (based on the par value) is 8.8 percent.

2. Given the information below, answer the following questions.

A convertible bond has the following features:

· Principal
$1,000

· Maturity date
10 years

· Interest
$90 (9% coupon)

· Call price
$1,130

· Exercise price
$73 a share

a. The bond may be converted into how many shares?

b. If comparable non-convertible debt offered an annual yield of 14 percent, what would be the value of this bond as debt?

c. If the stock were selling for $68, what is the value of the bond in terms of stock?

d. Would you expect the bond to sell for its value as debt (i.e., the value determined in b) if the price of the stock were $68?

e. If the price of the bond were $980, what are the premiums paid over the bond’s value as stock and its value as debt?

f. If the price of the stock were $45, what would be the minimum price of the bond?

g. What is the probability that the bond will be called when the price of the stock is $68?

h. If the price of the stock rose to $87, what would happen to the price of the bond?

i. If the price of the stock were $87, what would the investor receive if the bond were called? Would the investor instead convert the bond?

Solution:

a. Number of shares: $1,000/$73 = 13.699 shares

b. Value of the bond as debt (assuming annual payments): Please see the Week 08 Practice Problems spreadsheet for the solution.

c. Value of the bond as stock: 13.699 x $68 = $931.53

d. The bond would not sell for $739.19 but for at least $931.53, its value as stock.

e. Premium over its value as stock: $980 ‑ $931.53 = $48.47. Premium over its value as debt: $980 ‑ $739.19 =$240.81

f. If the price of the stock were $45, the value of the bond as stock would be $45 x 13.699 = $616.46. The bond would sell for at least its value as debt ($739.19).

g. The value of the bond as stock would be $68 x 13.699 shares = $931.53 No one would convert the bond if it were called; they would accept the call price instead ($1,130). Thus there is no reason to expect the firm to call the bond.

h. The value of the bond as stock is $87 x 13.699 = $1,191.81; the bond’s value would rise to at least $1,191.81.

i. Since the bond is worth $1,191.81 in terms of stock, the holders would convert the bond. If they did not convert the bond, they would suffer a loss as they would receive only the call price, $1,130.

Adapted from:

Mayo, H. (2007). Basic finance: An introduction to financial institutions, investments & management. United States: Thomson South-Western.

Sheet1

%

0

Rate

Nper

Pmt

FV $1,000
type 0

PV

												Problem 1
	Rate	7.5		0
	Nper	20.00
	Pmt	$88
	FV		$1,000
	type
	PV	($1,132.53)
Problem 2
14%
10
$90
($739.19)

Sheet2

Sheet3

Problem 1

Problem 1

	Rate
	Nper
Pmt
	FV
	type
	PV

Problem 2

Problem 2

Rate
Nper

FV
type
PV

a.

b.

pmt

c.

d.

e.

f.

g.

h.

i.