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1. Determinants of Interest Rate for Individual Securities A particular security's default risk premium is 4.00 percent. For all securities, the inflation risk premium is 2.75 percent and the real interest rate is 3.25 percent. The security's liquidity risk premium is .95 percent and maturity risk premium is 1.25 percent.
The security has no special covenants. What is the security's equilibrium rate of return?
A-11.25%
B-8.20%
C-2.44%
D-12.20%
2. Taxable Equivalent Yield What's the taxable equivalent yield on a municipal bond with a yield to maturity of 4.5 percent for an investor in the 33 percent marginal tax bracket? (Round your answer to 2 decimal places.)
A-1.49%
B-4.50%
C-13.64%
D-6.72%
Preferred stock is not a common source of financing for most firms. However, it should be ignored as a potential source of capital. What is preferred stock and why is it beneficial to corporations? What are the disadvantages of issuing preferred stoc..
Mulherin's stock has a beta of 1.23, its required return is 11.75%, and the risk-free rate is 4.30%. What is the required rate of return on the market? (Hint: First find the market risk premium.)
Compute the effect of this estimated change in inflation on the price of a 15-year, 10% coupon bond with a current yield to maturity of 8%.
On August 1, 2014, Dambro Company acquired 800, $1,000, 9% bonds at 97 plus accrued interest. The bonds were dated May 1, 2014, and mature on April 30, 2020, with interest paid each October 31 and April 30. Account for this bonds as Held to maturity ..
“In an inflationary environment, it is possible for corporate income to increase more than proportionately to the rate of inflation.” Do you agree or disagree with the above statement? JUSTIFY your position.
Sapp Trucking's balance sheet shows a total of noncallable $45 million long-term debt with a coupon rate of 7.00% and a yield to maturity of 5.30 %. This debt currently has a market value of $50 million. The CFO thinks the WACC should be based on mar..
Beta Industries has net income of $3,400,000, and it has 1,085,000 shares of common stock outstanding. The company's stock currently trades at $65 a share. Beta is considering a plan in which it will use available cash to repurchase 30% of its shares..
What would be your required rate of return on a stock with a beta of 2, given the following (Ch 5): 6 mo CD = 2% 90 day T-Bill = 3% 10 year T-Note = 5% Prime = 7% Average return on the stock market = 10%
Dante Co. wishes to maintain a growth rate of 11.6 percent a year, a debt–equity ratio of 1.6, and a dividend payout ratio of 25 percent. The ratio of total assets to sales is constant at .88. What profit margin must the firm achieve?
Why does market efficiency matter - Efficient markets: definition and Implications and behavioral finance: the challenge to efficient markets
A 3.90 percent coupon municipal bond has 15 years left to maturity and has a price quote of 104.40. The bond can be called in eight years. The call premium is one year of coupon payments. Compute the yield to maturity. Compute the yield to call.
Davidson Corp has a $1000 par value bond outstanding paying annual interest of 6.5%. The bond matures in 25 years. If the present yield to maturity for this bond is 10%, calculate the current price of the bond. List i and n in your solution.
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