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Suppose you're looking at a company with a credit rating: Its bonds have average yield to maturity of 3.7%; its tax rate is 35%; and the yield to maturity on government bonds of the same maturity is currently 2.2%.
a) What is the cost Debt for this company?
b) Calculate the risk premium for this company's bonds, and explain how is it is affected by the firm's financing decisions (ie, the choice to use equity vs debt.
c) Now suppose this firm's credit rating is downgraded to "CCC" by S&P, and bonds of comparable risk currently trade at a risk premium of 10%. What will its Cost of Debt be now? And what could have happened to cause this?
If you earn an (effective) interest rate of 12% per annum, how many basis points do you earn in interest on a typical calendar day?
Suppose that zero interest rates with continuous compounding are as follows: - Calculate forward interest rates for the second, third, fourth, and fifth years.
A car rental agency which leases cars to another firm buy car for $9,000 and sells them for $6,000 two years later. What are the monthly rates each year?
Compute the bond’s current yield. Compute the taxable equivalent yield. Compute the yield to call.
The Closed Fund is a closed-end investment company with a portfolio currently worth $295 million. It has liabilities of $4 million and 6 million shares outstanding. a. What is the NAV of the fund? (Round your answer to 2 decimal places.) NAV $ b. If ..
what is the default risk premium on the corporate bonds'
Default Risk Premium A company's 5-year bonds are yielding 7.8% per year. Treasury bonds with the same maturity are yielding 5.15% per year, and the real risk-free rate (r*) is 2.05%. The average inflation premium is 2.7%, and the maturity risk premi..
Which one of the following best matches the primary goal of financial management?
The returns are 7.25 percent, 5.63 percent, 12.56 percent, and 1.08 percent.- What is the average arithmetic return and variance of this sampling?
A firm does not pay a dividend. It is expected to pay its first dividend of $0.18 per share in three years. This dividend will grow at 12 percent indefinitely. Use a 13 percent discount rate. Compute the value of this stock.
What is the dividend yield of Delta Company? What is the capital gain yield of Delta Company?
The Costaguanan stock market provided a rate of return of 95%. The inflation rate in Costaguana during the year was 80%. In the United States, in con-trast, the stock market return was only 12%, but the inflation rate was only 2%. Which country’s sto..
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