Swifty Corporation has three outstanding bonds with market values of 98,000, 231,000 and 185,000 with respective...
Swifty Corporation has three outstanding bonds with market values of
98,000, 231,000 and 185,000 with respective interest coupons of 8, 10 and
12 percent. The current yield of those bonds are 4%, 6% and 5.5%. The
corporation is considering a new project, what rate should be used for an
expected interest rate?
Homework Answers
The weighted average yield should be used as expected interest rate
Total debt = 98000+231000+ 185000 = 514000
Hence
Expected interest rate = 4%* 98000/514000+ 6%*231000/514000+ 5.5%*185000/514000
=5.44%
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