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Week 7 Individual Assignment
FIN 508 – Financial Management
Dr. Kallianiotis
Maria G Danylak
Due Sunday, December 8, 2019
15.5, 15.8, 16.13, 17.1, 17.3
15.5 Financial Leverage
Away Corp. has interest-bearing debt with market value of $55 million. The company also has 1.6 million shares
that sell for $43 per share. What is the debt-equity ratio for this company based on market values?
Debt-to-Equity ratio = total debt / total equity
Debt = $55,000,000
Equity = $43 * 1,600,000 = 68,800,000
= $55,000,000 / 68,800,000
= .7994
15.8 Valuing Callable Bonds
Assets, Inc., plans to issue $5 million of bonds with a coupon rate of 7 percent, a par value of $1,000, semiannual
coupons, and 30 years to maturity. The current market interest rate on these bonds is 6 percent. In one year, the
interest rate on the bonds will be either 9 percent or 5 percent with equal probability. Assume investors are risk-
neutral:
a. If the bonds are noncallable, what is the price of the bonds today?
b. If the bonds are callable one year from now at $1,080, will their price be greater or less than the price you
