1

When a bond sells at par value, the coupon rate is equal to the yield to maturity.
9%

2
At 11%
PV of principal 1,000 0.59345133 593.451328
PV of interest payments 100 3.69589702 369.589702
963.04103 Higher value
To interpolate:
1,000 - 72 928 Middle value

At 12%
PV of principal 1,000 0.56742686 567.426856
PV of interest payments 100 3.6047762 360.47762
927.904476 Lower value

0.99728135
11.997281 or 12% 11.87% vs 12% 1,000 0.57073146 570.731456
100 3.6164157 361.64157
3 932.373026 4.37302636
To approximate effective rate without bond maturity period:
120 985 0.12182741 100% 0.12182741
0.07309645 or 7.31% 40% 0.04873096
60% 0.07309645
4
PV of 10,000 in 20 years at 9% = 1,784.31

5
0.75 5 0.15 or 15%
After-tax cost of preferred stock is the same with its before-tax cost.

6
6% 65 3.9 per share
68 4 64
0.0609375 or 6.09%

7
Debt 1,500,000 0.6 1,500,000 0.55555556
Equity 1,000,000 0.4 1,200,000 0.44444444
Assets 2,500,000 1 2,700,000
 Investment level for 60,000 of RE at 40% equity portion is (60,000/0.4) 150,000.

8
Using the dividend growth model:
Cost of RE = {[Last dividend x (1 + Expected dividend growth rate)]/Current stock price} + Expected growth rate
Cost of RE = {[2.2 x (1 + 0.06)]/28} + 0.06 = 14.33%
35.0410298

35.1365539

1,000 0.56742686 567.426856

100 3.6047762 360.47762
927.904476 0.09552407

0.04873096
0.07309645
+ Expected growth rate