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Use the approximate yield formula or a financial calculator to rank the following investments according to their expected returns.
a) Buy a stock for $30 a share, hold it for three years, and then sell it for $60 a share (the stock pays annual dividends of $2 a share).
b) Buy a security for $40, hold it for two years, and then sell it for $100 (current income on this security is zero).
c) Buy a one-year, 5% note for $1,000 (assume that the note has a $1,000 par value and that it will be held to maturity).
What is the asymmetric information concept? What role does this concept play in a company's decision to change its financial structure or issue new securities?
Treasury bills outperformed inflation every year during the period 1925-2012. Small-company stocks outperformed large-company stocks every year during the period 1925-2012. On an annual basis, small-company stocks had more consistent rates of return ..
Explain why the Black option on futures pricing model is simply a pricing model for options on instruments with a zero cost of carry?
You are considering the purchase of a 20-year, non callable bond with a coupon rate of 9.0%. The bond has a face value of $1,000, and it makes semi annual interest payments. If you require an 12% nominal yield to maturity on this investment, what is ..
Nally, Inc., is considering a project that will result in initial aftertax cash savings of $6.5 million at the end of the first year, and these savings will grow at a rate of 3 percent per year indefinitely. What is the maximum cost Nally would be wi..
You buy a share of stock, write a 1-year call option with strike price X = $100 and buya 1-year put option with strike price X = $100. The net outlay required to establish this portfolio is $97. The stock pays no dividends. What is the risk-free i..
Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next nine years because the firm needs to plow back its earnings to fuel growth. The company will pay a $10 per share dividend 10 years from today ..
Warmack Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $390,000 is estimated to result in $150,000 in annual pretax cost savings.
Tauscher Textiles Corporation has an inventory conversion period of 45 days, a receivables collection period of 47 days, and a payables deferral period of 35 days. If Tauscher's sales are $3,309,028 and all sales are on credit, what is the firm's inv..
Which of the following is not a relevant factor in a division of assets during divorce planning
The Best Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated here. The corporate tax rate is 40 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are ..
A Treasury bill with 131 days to maturity is quoted at 96.920. What is the bank discount yield, the bond equivalent yield, and the effective annual return?
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