Use the Data Provided on Cadbury to Answer the Question

question 55

Multiple Choice

Use the data provided on Cadbury to answer the question below.The risk free rate is 4.25%.The expected return on the market portfolio is 9.75%.The corporate tax rate is 40%.The face value of Cadbury's outstanding bonds is 2.450 billion pounds sterling.The coupon rate on Cadbury's bonds is 4.5%.Assume that the bonds pay annual coupons.The yield to maturity on Cadbury's bonds is 4.5%.Cadbury's bonds mature in 7 years.Cadbury has 1.650 billion common shares outstanding.The market price of Cadbury's common shares as of Dec 31,2008 is 6.25 pounds sterling.Cadbury's Beta is 0.8.What is the market value of Cadbury's bonds?

• A) £0.13B
• B) £1.65B
• C) £1.80B
• D) £2.45B
• E) £2.49B

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Definitions:

Rounded

Rounded refers to the physical shape of particles or objects that have smooth edges and curves, often a result of erosion or abrasion processes.

Common Identity

A collective sense of belonging or unity shared among members of a group, organization, or community based on similar interests, goals, or characteristics.

Freely Interacting

Pertains to the unhindered and spontaneous exchange of ideas, information, or social behaviors among individuals or groups.

Popular Demand

A large request from the public for a specific good, service, or action.