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The CEO of the Geurts Corporation wants to know what its Cost of Retained Earnings is, when there is the following information:
Rd = 4% Rf = 3.5%
Market Risk Premium = 4.5%
Beta = 0.8
Last Dividend = $1.80
Growth Rate = 4%
Current Stock Price = $40
a. 7.87% b. 7.79% c. 7.93% d. 7.73% e. 8.02%
A twenty-year, 5% coupon, $1,000 bond is for sale. It makes annual (once per year) interest payments. (a) What cash flow can I expect if I buy the bond? (b) If its yield to maturity is 7%, what is its price? (c) If its price is $1,080.20, what is its..
Assume that the risk-free rate is 4.5% and that the market risk premium is 8%. What is the required rate of return on a stock with a beta of 0.8? What is the required return on the market?
A random walk for stock price changes is inconsistent with observed patterns in price changes. If the stock market follows a random walk, price changes should be highly correlated. If the stock market is weak form efficient, then stock prices follow ..
For two mutually exclusive projects, the net present value and internal rate of return methods select different projects if the required rate of return is greater than the discount rate at which the two net present value profiles intersect. If projec..
You have entered into a pay fixed/receive floating swap with a tenor of 10 years and standard conditions. How many payments can you calculate with certainty?
Newtone Company and Oldtone Company are identical in every way except their capital structures. uses leverage in its capital structure.
Richard is using the capital retention approach to determine how much life insurance to purchase. Richard would like to provide $45,000 per year to his family, forever, if he dies. If life insurance proceeds can be invested to earn a 5 percent annua..
Trade Restriction Effects on Exchange Rates. Assume that the Japanese government relaxes its controls on imports by Japanese companies. Other things being equal, how should this affect the (a) U.S. demand for Japanese yen, (b) supply of yen for sale,..
You want to have $72,000 in your savings account 13 years from now, and you’re prepared to make equal annual deposits into the account at the end of each year. If the account pays 7.30 percent interest, what amount must you deposit each year?
Would you argue that the cost of equity should be zero? After all, we can determine our own dividend policy. The amount of earnings we choose to keep in the business (i.e., retained earnings after paying dividends) is "free", right?
Consider the following annualized spot rates: Maturity Annualized Spot Rates. Based on this information calculate the implied six-month forward rate one-and-a-half years from now.
Discuss the various issues that must be considered in selecting an investment banker for an IPO. Which type of placement is usually preferred by the issuing firm? Why?
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