The most accurate measure of the cost of a company’s debt
Question:1.The most accurate measure of the cost of a company’s debt is:Choose one answer.A.The coupon rate of the company’s market traded debt.B.The yield to maturity of the company’s market traded debt.C.The company’s interest expense.D.The yield of an Australian government 10-year bond.2.Mt. Langi issues a two-year corporate bond on 31 December, 2012 at the coupon rate of 10.5%, with a face value of $100 and interest paid semi-annually. One year later, the 2-year government bond remained unchanged at 4%, and the risk profile of Mt Langi to add to this risk free rate as compensation has not changed, at 6.5%.What would be the market price of the Mt Langi 2-year bond one year prior to maturity? (Roundup to two decimal places)Answer:UnitNumber3.Mt. Langi issues a two-year corporate bond on 31 December, 2012 at the coupon rate of 10.5%, with a face value of $100 and interest paid semi-annually. One year later, the 2-year government bond has risen to 6%, though the risk profile of Mt Langi to add to this risk free rate as compensation has not changed, at 6.5%.What would be the market price of the Mt Langi 2-year bond one year prior to maturity? (Roundup to two decimal places)Answer:UnitNumber4.Suess Inc issues a 2-year corporate bond on 31 December, 2012 with a coupon rate of 7.6%, with a face value of $100 and interest paid semi-annually. Eighteen months later, the 2-year government bond has fallen to 1%, though the risk profile of Suess Inc remains that of a BBB-rated company, 2%. What would be the market price of the Suess Inc 2-year bond, 6 months prior to maturity? (Roundup to two decimal places)Answer:UnitNumber5.A bank recently decided that 6.5% should be added to the risk free rate to compensate it for the risk it would be taking on in lending to Mt Langi. If the 2-year Australian government bond rate is currently 4%, what would be the coupon rate at which a 2-year corporate bond for Mt Langi would be set, taking into account an appropriate cost of risk for the company? (Show as a percentage NOT a decimal.)Answer:NumberUnit6.If the 10-year Australian government bond rate is currently 3.8%, what would be the coupon rate at which a 10-year corporate bond rate for Seuss Inc would be set, taking into account the fact that the spread for a company with the same (5.6%) probability of default was 2%?Answer:NumberUnit7.Mt. Langi issues a two-year corporate bond on 31 December, 2012 at the coupon rate of 10.5%, with a face value of $100 and interest paid semi-annually. One year later, the 2-year government bond has fallen to 1%, though the risk profile of Mt Langi to add to this risk free rate as compensation has not changed, at 6.5%.What would be the market price of the Mt Langi 2-year bond one year prior to maturity? (Roundup to two decimal places)Answer:UnitNumber8.Suess Inc issues a 2-year corporate bond on 31 December, 2012 with a coupon rate of 7.6%, with a face value of $100 and interest paid semi-annually. Eighteen months later, the 2-year government bond has fallen to 1%, though the risk profile of Suess Inc remains that of a BBB-rated company, 2%. What would be the market price of the Suess Inc 2-year bond, 6 months prior to maturity? (Roundup to two decimal places)Answer:UnitNumber
