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1. Assume that the yield on a 5 year security is 2.75% , the one year yield is 1.20%, and your expectations for the next 4 year one year yields are 1.55%, 2.19%, 2.98%, and 3.10%. Determine whether you should invest in the 5 year security or 5 consecutive one year securities according to the un-bias expectations theory. Depending upon your answer what should happen to the long term and short yields in the market?
2. Northern Electric sold 30-year bond 3 years ago. The bond pays a 6.5 percent annual coupon and have a $1,000 face value. The current price per bond is $1005.20. What is the firm’s pretax cost of debt?
a) 5.87 percent
b) 6.01 percent
c) 6.23 percent
d) 6.46 percent
e) 6.78 percent
Payments are to be paid monthly. If all payments are paid as agreed, how much total interest will be paid?
You have $28,918.78 in a brokerage account, You expect to earn 13% annually on the account. How many years will it take to reach your goal?
The dividend for Should I, Inc., is currently $1.4 per share. It is expected to grow at 16 percent next year and then decline linearly to a 4 percent perpetual rate beginning in four years. If you require a 22 percent return on the stock, what is the..
Applications: State the financial management principle that appears to be violated in each of the following cases and explain how it is violated:
What are the total assets? What is the return on assets (ROA)? What is the total equity?
Who decides the delivery options on a future contract that has already been entered into?
Becky Fenton has 70/140/80 automobile insurance coverage. If two other people are awarded $115,000 each for injuries in an auto accident in which Becky was judged at fault, how much of this judgment would the insurance cover?
The book discusses the Efficient Market Hypothesis (EMH) and its three forms. The EMH has a lot to do with information and stock prices. How does information get into prices? How do we know if prices reflect all available information?
A local business owner is considering adding another employee to his staff in an effort to increase the number of hours that the store is open per day. If the employee will cost the owner $4,000 per month and the store takes in $50/hour in revenue wi..
Use the formulat-driven CB approach to generate after-tax profit margins & depreciation tax shield estimates.
Sears is evaluating the choice between paper check disbursement and ACH disbursement. Sears would incur up-front investment costs of $40,000. Based on a perpetuity of 1,000 payments per month, per-payment savings if 40 cents, annual cost of capital i..
Jared is looking forward to graduating with his MBA from OSU. He wants to begin saving for retirement and believes he will need $135,000 during his first year in retirement (he assumes a 2% annual inflation rate, so the $135,000 will have about the s..
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