Question

1) Keenan Industries has a bond outstanding with an 8.25% coupon, payable semiannually, and a $1,000 par value. The bond's dollar price is $1,066.00 and the bond is callable at 104. The bond's yield to call is 7.41 percent. When can the bond be called (round to the nearest whole year)?

2) You turn 35 today, and you plan to save $2,000 each month for retirement, with the first deposit made at the end of this month. You plan to retire 30 years from today, when you turn 65, but you're not sure how long you can expect to live after retirement, so you want the payments to go on forever. Under these assumptions, how much can you spend each month after you retire? Your first withdrawal will be made at the end of the first month of retirement.

You will invest in a mutual fund that's expected to provide a return of 4.5% per year, compounded monthly throughout your life.

3) Patterson Brothers recently reported EBITDA of $7.5 million and net income of $2.1 million. It had $2.0 million in interest expense, and its corporate tax rate is 30 percent. What is Patterson Brothers' charge for depreciation and amortization?

4) Brown Office Supplies recently reported $17,000 of sales, $8,250 of operating costs other than depreciation, and $1,750 of depreciation. It had $9,000 of bonds outstanding that carry a 7.0% interest rate, and its federal-plus-state income tax rate was 40%. What is the company's operating profit margin?

Answer 1

1]

Years to maturity is calculated using NPER function in Excel :

rate = 7.41%/2 (converting annual YTC to semiannual YTC)

pmt = 1000*8.25%/2 (semiannual coupon payment = face value * coupon rate / 2)

pv = -1066 (current bond price. This is entered with a negative sign because it is a cash outflow to the buyer of the bond today)

fv = 1040 (call price = face value * 104% = $1,000 * 104% = $1,040)

The NPER calculated is the number of semiannual periods until call date. To get number of years, we divide by 2.

Number of years until call date = 6 years