Reference no: EM13825020
1. Using the security market line formula rather than the dividend discount formula, determine the expected return on a firm's common stock when
(a) beta = 1.0;
(b) the risk-free rate is 4%; and
(c) marketplace interest rates have hovered around 9%.
2. Calculate the appropriate selling price of a 30-year 5% coupon, $1,000 corporate bond that was purchased five years ago. Marketplace interest rates are averaging 8%.
3. Given the data below, calculate the expected return, variance, and standard deviation of the following company.
In a recessionary economy, which is expected to occur with a 30% probability, the expected returns would be -5%.
In an expanding economy with an expected probability of occurrence of 20%, the expected return would be 20%.
In a normal economy expected to occur 50% of the time, the expected return would be 5%.
4. As percentage of debt on the balance sheet increases, financial leverage increases, which makes EPS increase. If this is the case, why don't all firms try to end up with very high debt?
5. What would be the expected change to a 30-year bond's market price or value if its YTM increases to 10.4%? Its YTM is now 9.4%, it has an 8% annual coupon, $1,000 face value, it is currently priced at $897.26, and its duration is eight years.
6. M&M Proposition I comes in both tax free and world with taxes formats. Explain what these concepts mean. You must use your own words to earn credit here.
7. What is the coupon rate needed on a $1,000 face value, 6% coupon corporate bond to make it equivalent in terms of return to one whose interest rate is tax free? Assume the corporate tax rate is 40%.
8. A $1,000 face value bond was issued at par 20 years ago with a 6% coupon paid semiannually. The bond now has nine years remaining to maturity and similar debt obligations are yielding 12%.
• Compute the current price of the bond.
• Assuming that the bond is sold at its current price, what is the capital gain or loss from the original purchase?
• Now assume that the price of the bond returns to par. What is the percentage capital gain or loss for the new owner?
• Explain why the percentage gain is different from the percentage loss
|
Calculate the price elasticity of demand for gasoline
: The problem belongs to Economics and it is discusses about price elasticity of requirement for gasoline in France after the Arab oil crisis in 1973-74.
|
|
Equivalent units for materisl and for conversion cost
: Manufacturing company blends a special product in a one department process. Materials are added at the beginning of the process and conversion costs are uniformly incurred. how many units were transferred out fo the department during june? calculate ..
|
|
Subcontract the management of a project
: Imagine your company is being used to subcontract the management of a project. However, you find that you must first convince the contracting company that your company is worthy of the position. Design a plan that centers on TQM and the contracting c..
|
|
How much is the direct materials cost standard
: Wood Designs Company, a custom cabinet manufacturing company, is setting standard costs for one of its products. The main material is cedar wood, sold by the square foot. How much is the direct materials cost standard (per square foot)?
|
|
Compute the current price of the bond
: A $1,000 face value bond was issued at par 20 years ago with a 6% coupon paid semiannually. The bond now has nine years remaining to maturity and similar debt obligations are yielding 12%. Compute the current price of the bond. Assuming that the bo..
|
|
Transport principles of economy of scale and distance
: transport principles of economy of scale and economy of distance
|
|
Start saving for retirement
: You would like to start saving for retirement. Assuming you are now 25 years old and you want to retire at age 55, you have 30 years to watch your investment grow. You decide to invest in the stock market, which has earned about 12% per year over the..
|
|
Draw an aon and time-based network diagram
: a. Draw an AON and time-based network diagram and identify the critical path in each one.b. Calculate the daily resource loads for the project. (You may wish to use Excel although this problem is small enough to lend itself to a manual approach.)
|
|
Which option is the lowest-cost alternative for star studios
: Star Studios is looking to purchase a new building for its upcoming film productions. The company finds a suitable location that has a list price of $1,540,000. The seller gives Star Studios the following purchase Which option is the lowest-cost alte..
|