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Yesterday the S&P 500 index closed at 1,340. Today, immediately before the opening of trading on the New York stock exchange, one-year S&P futures are trading at 1,397.25. The one-year riskless rate of interest is 5 percent per year compounded annually. The expected future value of the annual dividends for the S&P index are $22.75. What is your best estimate of todays opening value for the S&P index?
Discuss the concept of pyramiding as it applies to this investment situation.-What is the present margin position (in percent) of Ravi's account?
Patrick has just graduated from college and would like to establish credit. He has no immediate financing needs,
A machine costs $4 million, has a three-year useful life, and has zero salvage value. Assume a discount rate of 14% and a 40% tax rate. Assuming the machine is depreciated on a straight-line basis, what is the present value of the depreciation tax sa..
Walker Industries has a bond outstanding with 12 years to maturity, a 9% coupon paid annually, and a $1,000 par value. The bond has a 7% nominal yield to maturity, but it can be called in 4 years at a price of $1,025. What is the bond’s nominal yield..
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.3 million.
Assume that a recent high school graduate reads in a magazine that the rate of return on a college education has been estimated to be 15 percent. What advice would you give the graduate in using this information as he or she decides whether to attend..
Harley Motors has $8 million in assets, which were financed with $2.4 million of debt and $5.6 million in equity. Harley's beta is currently 0.6 and its tax rate is 40%. Use the Hamada equation to find Harley's unlevered beta, bU.
The following table shows the prices of a sample of Treasury strips. Each strip makes a single payment at maturity. Calculate the interest rate offered by each of these strips. s the yield curve upward-sloping, downward-sloping, or flat?
MDM Inc. is considering factoring its receivable. The firm has credit sales of $600,000 per month and an average receivable balance of $600,000 with net 90 credit terms. What is the cost of borrowing the maximum amount of credit available to MDM Inc...
It is now January 1, 2012, and you are considering the purchase of an outstanding bond that was issued on January 1, 2010. It has a 7.5% annual coupon and had a 30-year original maturity. What is the yield to maturity. If you bought this bond, which ..
If the discount rate is 6 percent, what is the future value of these cash flows in Year 4? What is the future value at an interest rate of 14 percent? What is the future value at an interest rate of 21 percent?
Using the security market line formula rather then the dividenddiscount 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%.
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