# Questions - Solutions please !!

1.Waynesboro Industries is considering issuing a 10-year, option-free, semiannual coupon bond with a 9% coupon rate. The bond is expected to sell at 95% of par value. If the company’s marginal tax rate is 30%, then the after-tax cost of debt is closest to: A. 6.30%. B. 6.86%. C. 9.00%. D. 9.80%. 2. The cash manager for Wicker Enterprises is investigating the purchase of a banker’s acceptance (BA). The \$1,000,000 face value BA has 150 days to maturity and is quoted at 4.05% on a discount-basis yield. If Wicker’s marginal tax rate is 25%, then the money market yield on the BA is closest to: A. 3.09%. B. 3.13%. C. 4.12%. D. 4.18%. 3. Regarding corporate governance, which of the following most likely would be a reason for concern when evaluating the compensation committee? The compensation committee: A. has written policies and procedures. B. includes members of executive management. C. purchases shares on the open market to fund stock option commitments. D. discloses information about compensation paid to executives and board members.

1. 6.86%

B Not sure B

1- find YTM, multiply by (1-tax) 2- MMY = 360*r/(360-t*r) where rbd is the discount basis yield 3-my guess B. includes members of executive management.

B,C, and B

1 - Even after finding YTM, I am not getting correct answer. 2 - can you please show the calculation…r = 0.0405? and t =150?

solution for 2… 4.05%*(150/360)= 1.6875% discount…next do 1,000,000*(1-.016875) = 983,125. Find your HPY by doing 1,000,000/983,125 - 1 = 1.7165%. Convert to a MMY by doing (360/150)*1.7165% = 4.12%

mib20 - how do you get C for the second one? can you show me the steps?

look above

I like this formula for - 2- MMY = 360*r/(360-t*r) where rbd is the discount basis yield - Thanks… Pls for q-1 - what the YTM? Cans omeone show me the inputs…

shahravi123 Wrote: ------------------------------------------------------- > I like this formula for - 2- MMY = > 360*r/(360-t*r) where rbd is the discount basis > yield - Thanks… > > Pls for q-1 - what the YTM? Cans omeone show me > the inputs… FV = 1000 PV = - 950 PMT = 45 N = 20 YTM = 4.89 X 2 = 9.8 X (1-.3) = 6.86 Remember you have to divide the coupon pmt by 2 for S/A and N X 2 because it’s double the periods…

i got B for # 1. i did a back of the envelope (int exp/book val of debt)(1 - tax rate) and got 6.8% magically