Problem 1: The zero coupon bonds of Markus Inc. have a market price of RM394.47, a face value of RM1,000, and a yield to maturity of 6.87%. When will this bond mature? (Answer in number of years.)
Problem 2: Windmill Corp has a 15-year bond issue outstanding that pays a 9% coupon. The bond is currently priced at RM894.60 and has a par value of RM1,000. Interest is paid semiannually. What is the yield to maturity?
Problem 3: Creative Inc. has a current beta of 1.6. The market risk premium is 7 percent and the risk-free rate of return is 3 percent. By how much will the cost of equity increase if the company expands its operations such that the company beta rises to 1.9?
Problem 4: The Bystanders Company has 100,000 bonds outstanding that are selling at par value (RM1,000). Bonds with similar characteristics are yielding 7.5 percent. The company also has 1 million preferred stocks and 5 million shares of common stock outstanding. The preferred stock has par value of RM100 and fixed dividend of 10.5 percent and is selling at RM56 per share. The common stock has a beta of 1.2 and sells for RM38 a share. The Treasury bill is yielding 3 percent and the return on the market is 12 percent. The corporate tax rate is 34 percent. What is Bystander's weighted average cost of capital?