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What is the price today (in dollars and cents) of a 3-year 10.95% coupon rate bond that returns the par value of $1000 at maturity. Use a required rate of return of 12.50%?
You should set your calculator for at least four decimal places of accuracy.
Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 20 years to maturity, and a coupon r..
Suppose that the probability that any stock increases in price (over a 3 month period of time) is 60%. What is the probability that in a sample of 120 stocks that you buy that at least 65% increase in price (over a 3 month period of time)?
Money is invested in a savings account with a nominal interest rate of 2.4% convertible monthly for three years. The rate of inflation is 1.5% for the first year, 2.8% for the second year, and 3.4% for the third year. Find the percentage of purchasin..
Burkhardt Corp. pays a constant $14.40 dividend on its stock. The company will maintain this dividend for the next six years and will then cease paying dividends forever. If the required return on this stock is 12 percent, what is the current share p..
If I sold a $50 call option without owning the underlying stock for $1 that expires in January of 2014, What would I hope that happens and why? Can anyone explain an interest rate swap?
Suppose you hold a bond and interest rates suddenly fall. Duration says that bond prices will raise a given amount. If Convexity is included in this estimate, will bond prices go above or below what Duration predicts? Explain your answer.
Ashley borrowed $2,000 from her bank to buy a new bedroom set. Interest on the loan totals $120, and the total of $2,120 is to be paid in 12 equal installments of $176.67. According to the Rule of 78s, how much interest will be rebated to Ashley if s..
Willie Wilson plans to borrow $20,116 at the beginning of each of his 5 years of college. He will repay the loan in 16 equal annual installments at the end of each year starting one year after he graduates. If the interest rate is 11.34%, how large w..
FFDP Corp. has yearly sales of $29.4 million and costs of $14.7 million. The company’s balance sheet shows debt of $55.4 million and cash of $39.4 million. There are 1,960,000 shares outstanding and the industry EV/EBITDA multiple is 8.9. What is the..
Bowdeen Manufacturing intends to issue callable, perpetual bonds with annual coupon payments. The bonds are callable at $1,195. One-year interest rates are 13 percent. There is a 60 percent probability that long-term interest rates one year from toda..
Empirical evidence supports the existence of a clientele effect. This implies that every time a company revises its dividend policy to pay out a greater (or smaller) percentage of earnings, the characteristics of its shareholders also change.
Briefly explain the following statement: Models that attempt to estimate the firm’s cost of retained earnings are simultaneously measuring the opportunity cost borne by equity investors in the firm (i.e., those that own stock in the firm).
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