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Your firm has been renting video games to teenagers for $5 rental when your marginal cost is $3. Typically, your customers rent three games per month. You are exploring a bundling option in which customers can pay a subscription fee per month for unlimited rentals per month. Explain how adverse selection and moral hazard will lead you to adopt a price other than $15 per month.
Brown Inc. is considering changing its capital structure. Brown currently has $100 million in debt that carries a 6% interest rate. Its stock currently sells for $25 a share and there are 20 million shares outstanding. What is Brown’s unlevered beta?..
Rotary Bearings has just announced that their next dividend will be $2.25. In the announcement, management has projected that earnings will grow at 10 percent per year until the end of year 5, then slow to 5 percent for the following 5 years and then..
How will the trade conduct the transaction? What’s his/her profit (loss)?
Assuming that all the following investment opportunities have the same risk, which one would you choose to invest in?
(Bond valuation? relationships) A bond of Telink Corporation pays ?$100 in annual? interest, with a ?$1,000 par value. The bonds mature in 15 years. The? market's required yield to maturity on a? comparable-risk bond is 8 percent. What is the value o..
Assume that the 3-year 4.5% bond is callable in Year 1 at (101) and in Year 2 at par. The call rule is to call whenever the price exceeds the call price. Calculate the value of the bond with the embedded option. What is the value of the embedded call..
Suppose a proposed public policy could result in three possible outcomes: (1) present value of net benefits of $5,000,000 (2) present value of net benefits of $1,000,000 or (3) present value of net benefits of -$12,000,000 (loss). Suppose society is ..
What is the current value of the bonds? What type of bond is this?
You purchased a zero-coupon bond one year ago for $279.83. The market interest rate is now 9 percent. Assume semiannual compounding periods.
Super Sonics Entertainment is considering buying a machine that costs $670,000. The machine will be depreciated over five years by the straight-line method and will be worthless at that time. The company can lease the machine with year-end payments o..
A zero-coupon bond has a face value of $210 and matures in 1 year. The rate of return on equally risky assets is 5% (.05). What will its price be today? Suppose that the price were below the number you found. Can you explain why any price below the o..
Jackson Central has a 8-year, 8% semi-annual coupon bond. Jackson Central bond’s currently sells for 111. According to data, a 8-year, 8% Treasury bond sells for 125. As a bond investors who owns this bond, you envision that due to a rise in inflatio..
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