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Consider two $1,000 face-value coupon bonds: one a two-year bond and one a three-year bond.
Each bond is priced at par in period ‘t’.
Both carry a coupon rate of 10%.
You will sell each bond in period ‘t+1’, but when you sell the bonds interest rates in the economy have increased to 15%. If the overall price level increased by 2% from year ‘t’ to year ‘t+1’ solve for the real one-period return for each bond. Show your work.
Suppose that the assets of a firm are now priced at $100mil and are driven by a two-state binomial model and that the risk-free rate of interest is zero. Furthermore the firm has currently just one outstanding share. The asset return in the up-node a..
Lugget Corp. has one bond issue outstanding with an annual coupon rate of 3.4%, a face value of $1,000 and a price of $1,034.12, which matures in 10 years. The company's tax rate is 31%. What is Lugget's pre-tax cost of debt?
Explain how the relationship between risk and the type of financing raised for the investment is different for ”business risk” and ”financial risk”
A stock is expected to pay a dividend of $1.50 per share in 2 months and 5 months. The stock price is $50, risk free rate is 8%. An investor has taken a long position in a 6 month forward contract on a stock. What is the forward price?
The book discusses the Efficient Market Hypothesis (EMH) and its three forms. The EMH has a lot to do with information and stock prices. How does information get into prices? How do we know if prices reflect all available information?
Thomas earns $45,000 per year. What retirement plan should Thomas consider under the following circumstances?
A large retailer obtains merchandise under the credit terms of 3/20, net 40, but routinely takes 70 days to pay its bills. (Because the retailer is an important customer, suppliers allow the firm to stretch its credit terms.) What is the retailer's e..
Anna and mike are considering their life insurance options. They both make about 50,000/year. In the event that something happens to one of them, they figure they will need to cover the other persons salary at 80% for 10 years. Anna and mike do NOT p..
Irone Industries has a beta of 0.8. If the return on the market is 16% and the return on treasury bills is 5%, what is Irone Industries’ expected return and risk premium?
A company pays a dividend of $1.95 and it’s expected to grow at 5.5% for the foreseeable future. Your required rate of return is 11.8%. What's the value of the stock under the perpetual DDM?
You are choosing between two projects. The cash flows for the project are given in the following table ($ million) : What are the IRRS of the two projects? Why do IRR and NPV rank the two projects differently?
question 1a stock price is currently 100. it is known that in one year it will be either 146 or 80. the risk-free rate
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