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Suppose a three-year corporate bond provides a coupon of 8% per year payable semiannually and has a yield of 6% (expressed with semiannual compounding). The yields for all maturities on risk-free bonds is 4% per annum.
Assume that defaults can take place every six months (immediately before a coupon payment) and the recovery rate is 40%.
Estimate the semiannual default probabilities assuming the unconditional default probabilities are the same on each possible default date.
what is the arbitrage strategy to exploit the opportunity and how much is the arbitrage profit?
An investment project has annual cash inflows of $4,200, $5,100, $6,300, and $5,500, and a discount rate of 15 percent. What is the discounted payback period for these cash flows if the initial cost is $6,900? What is the discounted payback period fo..
In the second scenario for exercise 5 the sales rep commission is based upon meeting both annual and monthly sales quotas.
The sale of a new common stock at a price greater than par vale will affect which balance sheet accounts? What stock price would you consider appropriate?
You anticipate that XSensors Co. will pay a constant dividend of $2.61 each year for the next 10 years. How much are you willing to pay for this stock today?
What would be the net present value of a microwave oven that costs $173 and will save you $82 a year in time and food away from home? Assume an average return on your savings of 5 percent for 5 years. (Hint: Calculate the present value of the annual ..
Suppose a project has conventional cash flows. About its discounted payback? About its profitability index?
Assume that ¥87.04 equal $1. Also assume that 6.5614SKr equal $1. How many Japanese yen can you acquire in exchange for 4,300 Swedish krona?
A Hummer H3 sells for $96,000 tax included. GMAC lends money at the rate of 8.7% APR. What is the amount of the monthly payment?
A proposed nuclear power plant will cost $2 billion to build and then will produce cash flows of $280 million a year for 15 years.
Sarfraz Inc. currently has a stock price of $20 a share. The stock’s year-end dividend is expected to be $2 a share (i.e., D1 = $2.00). The stock’s required rate of return is 15% and the stock’s dividend is expected to grow at the same constant rate ..
Mark and Parveen are the parents of three young children. Mark is a store manager in a local supermarket. His gross salary is $74200 per year. Parveen is a full-time stay-at-home mom. Use the easy method to estimate the family’s life insurance needs.
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