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Answer the following Questions :
1. Liz is required to take out approximately 3.7% of the balance in the IRA in the first year and the percent increases each year. The IRA will essentially be all used by age 100. She may take out more than the minimum each year if she chooses. If Liz expects the IRA to earn 10% each year, will her IRA balance grow in the first 4 months years if she takes out an amount equal to the annuity payment? Calculate the earnings on an annual basis and use the total of 12 months of the annuity for the amount she will take out.
2. If Liz expects to earn 3% on the IRA, and she takes out an amount equal to the annuity payment, the IRA should end at zero in 17.5 years. Should Liz take the annuity or move the money to the IRA? What factors would influence her decision?
3. Kathy plans to move to Maryland and take a job at Mccormick as the assistant director of HR. She and her husband, Stan, plan to buy a house in Garrison, MD, and their budget is $500,000. They have $100,000 for the down payment and Mccormick will pay for closing costs. They are considering either a 30-year mortgage at 4.5 percent annual rate or a 15 year mortgage at 4 percent. Calculate the monthly payment for each using the PMT function.
Why is it inappropriate to view these bonds as perfect substitutes for such savings accounts as tax exempt life insurance contracts?
What is the company’s total market value of debt? What is your best estimate of the aftertax cost of debt?
A company had beginning inventories as follows: Direct Materials, $900; Work-in-Process, $1,100; Finished Goods, $1,900. It had ending inventories as follows: Direct Materials, $1,000; Work-in-Process, $1,200; Finished Goods, $2,000. Material Purchas..
Distinguish between asset management and liability management.
In February 2013 the risk-free rate was 4.37 percent, the market risk premium was 7 percent, and the beta for Dell stock was 1.56. What is the expected return that was consistent with the systematic risk associated with the returns on Dell stock? (
Which of the following hedges should qualify for the short-cut method?
Calculate the risk (beta) of a six-month call option with an exercise price of $530. Risk of Call Option:
The company uses the straight-line method of depreciation. The book value of the equipment at the beginning of the third year would be
How could bankruptcy costs affect a firm’s WACC? How can taxes affect the firm’s optimal capital structure?
Planning for Retirement Tom and Tricia are 22, newly married, and ready to embark on the journey of life. They both plan to retire 45 years from today. Because their budget seems tight right now, they had been thinking that they would wait at least 1..
A manufacturer has entered into American call option contract that allows it to buy 30,000 barrels of crude oil in three month at price of $185 per barrel. Crude oil is currently selling on the wholesale market at $165 per barrel and has a standard d..
Anchors are ubiquitous in financial markets. What is the difference in the present value if you receive these payments at beginning of each year
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