BUS 320 Lecture Notes - Lecture 12: Preferred Stock, Financial Risk, Steady-State Economy
6 May 2020
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Helps in evaluating financial commitment firm must make to. Cost of corporate financing (capital) is used in analyzing feasibility of investment on ensuing. Relationship between time value of money, required return, cost of financing and investment project decisions. Bond provides annuity stream of interest payments and principal payment at maturity. Cash flows discounted at y (yield to maturity) Value of y determined in bond market. Present value of regular interest payments discounted at y. Added to present value of principal (also discounted at y) How to find price of bond on calculator: Insert principal payments at maturity, hit fv. Payments = face value x annual coupon rate. Example: exodus limousine company has ,000 par value bonds outstanding at 18 percent interest. Use appendix b and appendix d for an approximate answer but calculate your final answer using the formula and financial calculator methods. Compute the current price of the bonds if the percent yield to maturity is: 6%
