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Assume the inflation rate is 2.31% APR, compounded annually. Would you rather earn a nominal return of 5.78% APR, compounded semiannually, or a real return of 2.95% APR, compounded quarterly? To put these on the same basis, you must convert them both to nominal EARs.
A. The EAR for the 5.78% APR compounded semiannually is? (Round to 6 decimal places)
B. The nominal EAR for a real 2.95% APR compounded quarterly is? (Round to 6 decimal places)
C. Which would you rather earn?
Explain why a large bank may be willing to accept higher average loss rates on loans it is able to credit score.
You have a choice between two investments. Investment A is an annuity which pays $250 every six months for ten years with the first payment occurring today. Investment B is a one-time cash payout of $3000. The “annual” indifference rate for these two..
Maverick Milling Co. just paid a dividend of $1.00 to its shareholders. The firm is expecting high growth over the next few years and is projecting the dividend to grow by 15% in the first year, 20% in the second year, and $15% in the third year, bef..
The dividend strategy is part of the larger process of trying to keep the shareholders satisfied. A good thing for job security… Clearly, senior managers need to be strategic, but still be aware of the short-term consequences. However, decisions that..
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If the returns on Stock A are as follows: Year 1 return = -2 %, Year 2 return = -20 %, Year 3 return = 20 %, Year 4 return = -17 %, and Year 5 return = -13 %, what is the average return for Stock A over this 5 year period?
Scott Investors, Inc., is considering the purchase of a $360,000 computer with an economic life of five years. The computer will be fully depreciated over five years using the straight-line method. The market value of the computer will be $60,000 in ..
TechNo Corp is a rapid-growth IT firm. TechNo expects to grow at 25% for the next four years. After year four, growth will moderate at 4.75% and TechNo will pay a dividend of $3.25 per share in year five. If TechNo’s required return is 13.2% and the ..
Find the hedge ratio for a call option on €10,000 with a strike of €17,000. The current exchange rate is €1.70/€1.00 and in the next period the exchange rate can increase to €2.40/€ or decrease to €.9375/€. The current interest rate are i€=3% and i€=..
Time Watch Co. has $46 million in earnings and is considering paying $6.45 million in interest to bond hloders and $4.35 million to preferred stockholders in dividends. What are the bondholders' contractual claims to payment?
If the expected rate of return on the market portfolio is 15% and T-bills yield 4%, what must be the beta of a stock that investors expect to return 12%?
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