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1. A beta coefficient reflects the response of a security’s return to:
-the risk-free rate.
-an unsystematic risk.
-a systematic risk
-the market rate of return.
-idiosyncratic risk.
2. A company has decided to produce a new product. The project requires an immediate outlayof $6 million. In one year, another outlayof $3 million will be needed. The year after that, earnings will increase by $2 million. That profit level will be maintained in perpetuity. What will the new share price of the stock be?
Year 0 Investment (6,000,000)
Year 1 investment (3,000,000)
Year 2 perpetual cash flow 2,000,000
Required return 15%
Default Risk Premium The real risk-free rate, r*, is 2.25%. Inflation is expected to average 2.5% a year for the next 4 years, after which time inflation is expected to average 3.4% a year. Assume that there is no maturity risk premium. An 11-year co..
Filer Manufacturing has 6 million shares of common stock outstanding. The current share price is $78, and the book value per share is $5. Filer Manufacturing also has two bond issues outstanding. The most recent dividend was $5 and the dividend growt..
Using the following information about LIBOR at the end of each of the next fi ve years, determine the cash flows in the swap.
Sam promises to pay Sandy $2,500 in four years and another $3,200 four years later for a loan of $2,500 from Sandy today. What is the monthly interest rate that Sandy is getting? Assume interest is compounded monthly.
The Dunning Co. needs to raise $66.9 million to finance its expansion into new markets. The company will sell new shares of equity via a general cash offering to raise the needed funds. What are the required proceeds from the sale necessary for the c..
You have just introduced "must have" headphones for the iPod. Sales of the product are expected to be 20,000 units this year and are expected to increase by 18% in the future. What are the expected sales in each of the next three years? If the 20,000..
Tom Cruise Lines Inc. issued bonds five years ago at $1,000 per bond. These bonds had a 20-year life when issued and the annual interest payment was then 13 percent. Assume that five years later the inflation premium is only 3 percent and is appropri..
It is January and Caustic Chemicals is considering issuing $500 million in bonds in June to raise capital for an expansion. Currently, CC can issue 20-year bonds with a 4% coupon (with interest paid semiannually), but CC is concerned that long-term i..
The project will also require an initial $264,350 investment in net working capital. What is the project’s initial investment outlay?
Determine whether each of the following is an asset, liability, revenue, expense, equity, or nothing. If more than one account is affected, analyze the impact on all accounts. Assume a year-end of December 31st. Justify your answer with appropriate "..
Which one of the following statements related to securities dealers is correct?
A convertible bond has the following features (rounding allowed in answers): The bond may be converted into how many shares? What is the current value of the convertible as a bond if prevailing interest rates are 6% (n=10)? What is the current value ..
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