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Suppose ABC Corporation has an obligation to pay $10,000 and $40,000 at the end of 5 years and 7 years respectively. In order to meet this obligation, it plans to invest money by selecting from the following three bonds: Coupon Rate Maturity (years) Yield Bond 1 4% 3 6% Bond 2 5% 6 6% Bond 3 7% 10 6% All bonds have the same face value $1000. Assume that the annual rate of interest to be used in all calculations is 6%. Consider semi-annual compounding. (Keep your answers to 2 decimal places, e.g. xxx.12.)
(a) Find the present value and duration of the obligation.
(b) Suppose the Corporation decides to use bonds 2 and 3. Denote by V2 and V3 to be the amounts of money to be invested in the two bonds, respectively. To get an immunized portfolio, write down appropriate equations in V2 and V3 first, and solve for V2 and V3.
What is the initial cost of this project, and how much free cash flow will it generate for the company every year, once it becomes.
What is the annual worth of an asset that costs nothing and gives you benefits of $3 in years gone through 10? Assume your MARR is 20%. Show work please
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The risk-free rate of return is 4%, the required rate of return on the market is 10%, and High-Flyer stock has a beta coefficient of 2.0. If the dividend per share expected during the coming year, D1, is $4.60 and g = 6%, at what price should a share..
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Bartlett Company’s target capital structure is 40% debt, 15% preferred, and 45% common equity. The after-tax cost of debt is 6.00%, the cost of preferred is 7.50%, and the cost of common using reinvested earnings is 12.75%. The firm will not be issui..
FINA6017 Financial Management. The analysis of the case study must: Analyse the financial statements of the business; Identify what the key ratios are and apply ratio analysis
A lottery winner will receive $1 million at the end of each of the next ten years. What is the future value (FV) of her winnings at the time of her final payment, given that the interest rate is 8.5% per year?
Your child will go to college 10 years from now and will require $25,000 at the beginning of each year for four years. In addition, you plan to retire in 20 years and want to have $100,000 available at the beginning of each of your expected 15 years ..
ABC Corp. has a floating rate debt for which the firm pays an interest rate of LIBOR + 1%. The firm enters into an interest rate swap on the same notional principal as the floating rate debt. In the swap, the firm receives LIBOR and pays 6.5%. What i..
Calculate the PV of each child’s college education (Use real vs nominal approach)
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