$1.00 Unit 7 Quiz Hints
Q:Here are some hints for questions 1,2, and 7.
For 1 just multiply the each of the capital instruments by the corresponding interest rate.
For 2 you must first calculate the YTM before you can get the answer to solve for the WACC. Remember that this bond makes quarterly payments so you must take this into account.
So for the number of periods it as to be 25 x the number of quarters in each year, the PMT is the yearly 8% payment divided by four, the PV is the current price of the bond, remember that the price is a cash out flow so it has to be negative. FV is always 1000.
Once you have this you can now solve for T. the formula is rd(1-T). Solve algebraically for T.
7. You have to set up the WACC formula and solve for the interest rate for the equity. Hint: remember that the rate you were given for the bonds (debt) is pre tax so you have to solve for it first (1-.40).
