Question No 1

Question no 1:
Where:
 PV is the present value (the amount received when the bonds are sold).
 F is the par value of the bond, which is $1,000.
 r is the yield rate, which is 7 percent or 0.07.
 n is the number of years until maturity, which is 20 years.
Plugging in these values:
PV = 1,000 / (1 + 0.07)²⁰
PV = 1,000 / (1.07)²⁰
PV ≈ 1,000 / 3.86968
PV ≈ $258.30
Now, to find the total amount Kareem Enterprises will receive for sixty bonds:
Total Amount = PV × Number of Bonds
Total Amount = $258.30 × 60
Total Amount ≈ $15,498
So, Kareem Enterprises will receive approximately $15,498 when the bonds are
first sold.
Question no 2:
YTM= (12%*940)/3
YTM = 37.6%
Question no 3:
N = 24(12*2)
I/Y = 13%
PMT= $140
FV = $1000
PV = $1899.31
Sum of all periodic payments =$3360($140*24)
Total interest = $2460.69
Question no 4:
The coupon rate and the yield to maturity are the same for bonds bought at face value,
or par. Bonds with a higher yield to maturity than their coupon rate are available to
investors who purchase them at a bargain. The yield to maturity of a bond bought at a
premium is less than the coupon rate.
Question no 5:
A bond's conversion and call characteristics are crucial components that can greatly
affect the bond's price. In a nutshell, here are the features:
Conversion feature:
With a conversion feature, bondholders have the option to exchange their bond for a
set amount of common stock shares issued by the issuer.
Price effect:
The possibility of capital appreciation in the event that the issuer's stock price
increases makes bonds with conversion features more appealing to investors, which in
turn affects the bond's pricing.
In general, a bond's price will be greater if it has a conversion feature than if it were
equivalent but non-convertible.
Call feature :
Bonds with a call feature allow the issuer to repurchase the bonds prior to their
maturity date at a set call price.
Price Effect:
If interest rates fall, the issuer may "call" the bonds, putting investors at risk of having
to reinvest their money at a lesser rate. This makes callable bonds risky for investors.
Callable bonds often have higher yields than non-callable bonds to make up for this
risk.
Because the issuer may be tempted to call and reissue the bonds at a lower rate if
interest rates have declined since the bond was issued, the bond price can be lower
with the call option compared to a bond without the feature.
Question no 6:
The formula for the break-even point in units is calculated by dividing the fixed cost
by the C.M. per unit, which equals 1000.
= 10000/10
= 1000
The break-even point in dollars can be calculated by dividing the fixed costs by the
cost-to-volume ratio, which is 10000 divided by 0.4, which equals 25000.
= 10000/0.4
= 25000
Question no 7:
Annual Interest: The coupon rate is 10%, and interest is paid semiannually, so the
annual interest is calculated as follows:
Annual Interest = Par Value * Coupon Rate
= $1,000 * 10%
= $1,000 * 0.10
= $100
The formula for semiannual interest is the product of the par value/coupon rate
divided by 2.
= ($1,000 * 10%) / 2
= ($1,000 * 0.10) / 2
= $100 / 2
= $50
The par value will be paid to the investor at the conclusion of the 25th year. The total
number of periods is 50 because the bond pays interest semiannually and has a 25-
year term.
Future Par Value = Par Value * (1 + Coupon Rate / 2)^(Number of Periods)
= $1,000 * (1 + 0.10 / 2)^(50)
= $1,000 * (1.05)^(50)
= 11,467.39
Question no 8:
The weighted average cost of capital is =(0.05*45%)+(0.14*10%)+(0.22*45%)
=(0.0225)+(0.014)+(0.099)
= 13.55%
Question no 9:
C (semi-annual coupon payment) is 12%×$1,0002=$60212%×$1,000=$60,
r (semi-annual interest rate) is 14%2=0.07214%=0.07,
n (total number of semi-annual periods remaining) is 5×2=105×2=10, and
The bond's par value, M, is $1,000.
Using these numbers as inputs into the formula:
Bond Value=($60×(1−(1+0.07)^-10)/0.07)+($1,000/(1+0.07)10)
=$929.76
Question no 10 :
Par value of the 10 bonds = 1000*10
= 10000
Interest =10%*10000
=$1000
Present value
=(1000/1.09)+(1000/1.09^2)+(1000/1.09^3)+(1000/1.09^4)+(1000/1.09^5)+(1000/1.0
9^6)+(1000/1.09^7)+(1000/1.09^8)+(1000/1.09^9)+(1000/1.09^10)+(1000/1.09^11)
=$10,641.77
Question no 11:
A) Current value of bond L= 1000*0.09*1-(1+0.06)^-5/0.06 + 1000/(1+0.06)^5
= $1126.37
B) Bonds L and N sell at a premium. As their maturity approaches, their prices will
approach their par values. Bond L will converge faster to its par value because it has a
shorter time to maturity. Bond M sells at par value. Its price will not change as it
approaches maturity (assuming interest rates remain unchanged).
C) Current value of bond M= $100
D) Current value of bond N = $590.71
Question no 12 :
A) Break even point in units = fixed cost / C.M per unit
=1050000/14
=75000
B) Break even point in dollars = fixed cost / C.M ratio
=1050000/0.4
= 2625000
C) DOL=Sales - Variable Costs/Operating Income
Given that the base level is 100,000 units, we can calculate the sales and variable
costs at this level and then use the formula:
Sales=Selling Price per Unit×Base Level
Sales=35×100,000
Variable costs are equal to the variable cost per unit multiplied by the base level.
Variable Costs=21×100,000
We can figure out the operational income now:
Revenue minus Variable Expenses minus Fixed Expenses is the operation income.
Operating Income=(35×100,000)−(21×100,000)−1,050,000
= 350000
Question no 13:
 EPS is earnings per share.

 Interest is the interest expense.
 T is the tax rate.
DFL Bond =EPS/EPS−(1,000,000×(1−0.40))
DFL stock =EPS/EPS−(0×(1−0.40))
Break even bond = 1000000/1-0.40
=166666.6
Breakeven, Stock= 0/1−0.40
=0
Question no 14:
A)
Structure 1 10000 20000 30000
EBIT 2000 4500 7000
EPS 1,05 2.55 4.05
DOL 1.11
DTL 1.18
BREAK EVEN 2000
POINT
Structure 2
EBIT 1800 4800 7800
EPS 0.93 2.73 4.53
DOL 1.25
DTL 1.32
BREAK EVEN 4000
POINT
B)The operational leverage and business risk associated with operating structure 2 are
higher.
C) It is recommended that Gulf Manufacturing use Operating Structure 2 if they
anticipate sales of 20,000 units.

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Question no 1:

Plugging in these values:

Total Amount = PV × Number of Bonds

Total Amount = $258.30 × 60

Total Amount ≈ $15,498

Sum of all periodic payments =$3360($140*24)

Total interest = $2460.69

 EPS is earnings per share.

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