Question

# The current stock price for a company is \$31 per share, and there are 2 million...

The current stock price for a company is \$31 per share, and there are 2 million shares outstanding. This firm also has 200,000 bonds outstanding, which pay interest semiannually. If these bonds have a coupon interest rate of 6%, 29 years to maturity, a face value of \$1,000, and an annual yield to maturity of 7.2%, what is the percent market value of debt for this firm? (Answer to the nearest hundredth of a percent, but do not use a percent sign).

Market Price per Bond = Present Value of the Coupon Payments + Present Value of the Par Value

= \$30 [PVIFA 3.60%, 58 Years] + \$1,000[PVIF 3.60%, 58 Years]

= [\$30 x 24.20643] + [\$1,000 x 0.128568]

= \$726.19 + 128.57

= \$854.76

Market Value of the Debt = \$17,09,52,000 [200,000 x \$854.76]

Market Value of the Shares = \$6,20,00,000 [20,00,000 Shares x \$31]

Total market Value = \$23,29,52,000 [\$ 17,09,52,000 + \$6,20,00,000]

Therefore, The percent market value of debt for this firm

= [Market Value of the Debt / Total Market Value] x 100

= [\$17,09,52,000 / \$23,29,52,000] x 100

= 73.39%

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