After two quaters of increasing levels of production, the CEO of Canadian Fabrication and Design was upset to learn that, during this time of expansion, productivity of the newly hired sheet metal workers declined with each new worker hired. Believing that the new workers were lazy or inefficiently supervised, the CEO instructed the shop foreman to "crack down" on the new workers to bring their productivity. Explain in the terms of production theory why it might be that no amount of "cracking down" can increase workers' productivity at Canadian Fabication and Design?
Kaufman enterprises has bonds outstanding with a $1,000 face value and 10 years left until maturity. They have an 11% annual coupon payment, and their current price is $1,175. The bonds may be called in 5 years at 109% of face value (Call price = $1,090).
a. What is the yield maturity?
b. What is the yield to call if they are called in 5 years?
c. Which yield might investors expect to earn on these bonds? Why?
d. The bonds’ indenture indicates that the call provision gives the firm the right to call the bonds at the end of each year beginning in Year 5. In Year 5, the bonds may be call at 109% of face value; but in each of the following 4 years, the call percentage will decline by 1%. Thus, in Year 6, they may be called at 108% of face value; in year 7, they may be called at 107% of face value; and so forth. If the yield curve is horizontal and interest rates remain at their current level, when is the latest that investors might expect the firm to call the bonds?