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One method used to obtain an estimate of the term structure of interest rates is called bootstrapping. Suppose you have a one-year zero coupon bond with a rate of r1 and a two-year bond with an annual coupon payment of C. To bootstrap the two-year rate, you can set up the following equation for the price (P) of the coupon bond: P=C_1/(1+r_1 )+(C_2+Par value)/(1+r_2 )^2
Because you can observe all of the variables except r2, the spot rate for two years, you can solve for this interest rate. Suppose there is a zero coupon bond with one year to maturity that sells for $949 and a two-year bond with a 7.5 percent coupon paid annually that sells for $1,020. What is the interest rate for two years? Suppose a bond with three years until maturity and an 8.5 percent annual coupon sells for $1,029. What is the interest rate for three years?
A Store paid an annual dividend of $11.15 per share last month. Today the company announced that future dividends will be increasing by 2.6 percent yearly.
When planning the benefits of risk management, why would you say that historical information is a benefit of risk management?
Risky, Corporation, an S corporation, borrows $100,000 from The Last Rational Bank for use in the real estate business. The $100,000 borrowed
Ruben intends to sell his consumers a special round-trip airline ticket package. He is able to purchase the package from airline carrier for $150 each.
You have found three investment choices for a one year deposit: Compute the EAR for 10% APR compounded monthly, 10 percent APR compounded annually and 9% compounded daily.
Examine the effects of international portfolio diversification on the investment portfolio. Analyze alternative investment vehicles.
Suppose you are deciding whether or not to invest in a particular firm. Discuss which basics of which financial statements you would want to carefully examine.
Evaluate the EOQ, average inventory, orders per year, average daily demand, reorder point, annual ordering costs, and annual carrying costs
Describe the concept of 'purchasing power parity' (PPP) in your own words. What are the requisite conditions for PPP to exist?
Suppose the expected returns and standard deviations of stock A and stock B are E(R)=0.15, E(R)=0.25, deviation is A=0.1,B=0.2.
Lexicon Corporation purchased a patent for $600,000 on January 2, 2001, at which time the patent had an estimated useful life of ten years.
Calculation of net present value with given cash flow and compute the NPV and the appropriate rate of return
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