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1. Which of the following bonds has the LEAST amount of interest rate risk?
a. 3% Coupon, 5-year Treasury Note
b. 1% Coupon, 15-year Treasury Note
c. 1% Coupon, 30-year Treasury Bond
d. 3% Coupon, 15-year Treasury Note
2. Which of the following statements is TRUE?
a. The interest paid on debt is taxable at the firm level.
b. Debt represents ownership in the firm.
c. Unpaid debt is a liability of the firm.
d. Creditors often have voting power.
Consider a European call option on a non-dividend-paying stock where the stock price is $52, the strike price $50, the risk-free rate is 5%, the volatility is 30%, and the time to maturity is one year. If in case (3) the option buyer has a 1% chance ..
You are evaluating the stock price of Kroger, a grocery store chain. It has forward earnings per share of $3. You notice that its competitor Safeway has a P/E ratio of 13. What is a good estimate of Kroger's stock price?
Tom Cruise Lines Inc. issued bonds five years ago at $1,000 per bond. Compute the new price of the bond.
You expect to receive an uncertain cash flow of $1, 210 in two years. Your cost of capital is 10% (APR) compounded annually and the risk-free rate is 2% (APR) compounded annually. Excluding compensation for the time value of money, how much extra com..
Suppose that a company must examine an investment today (1st January) costs 100 000 SEK. This investment would provide SEK 30 000 in cash to the company at the end of each year for the 5 coming years. Calculate and answer whether the company should i..
What is your annualized holding period return (annual percentage rate)?
Susan borrows 100,000. She has 2 repayment options: a. Level monthly payments at the end of each month for 30 years at a nominal interest rate of 12% convertible monthly b. Monthly interest payments to the lender at the end of each month for 15 years..
In the long run when a perfectly competitive firm experiences positive economic profits, firms enter the industry, market supply curve shifts rightward.
Jim Robertson Motors has bonds outstanding which will mature in 12 years. The bonds pay a 12 percent semiannual coupon and have a face value of $1,000 (i.e., the bonds pay a $60 coupon every six months). The bonds currently have a yield to maturity o..
Lambson Inc. uses a job-order costing system in which any underapplied or overapplied overhead is closed to cost of goods sold at the end of the month. In January the company completed job Z65N that consisted of 29,000 units of one of the company's s..
The risk-free rate of return is 4% while the market rate of return is 11%. Delta Company has a historical beta of 1.25. Today, the beta for Delta Company was adjusted to reflect internal changes in the structure of the company. The new beta is 1.38. ..
Explain the difference between the returns calculated in (a) and (b). Is there a difference in the risk associated with each financing alternative?
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