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Suppose the returns on long-term government bonds are normally distributed. Assume long-term government bonds have a mean return of 6.7 percent and a standard deviation of 10 percent.
Requirement 1: What is the probability that your return on these bonds will be less than −13.3 percent in a given year? Use the NORMDIST function in Excel to answer this question. (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (eg., 32.16).) Probability %
Requirement 2: What range of returns would you expect to see 68 percent of the time? (Negative amount should be indicated by a minus sign. Input your answers from lowest to highest to receive credit for your answers. Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimal places (e.g., 32.16).) Expected range of returns % to %
Requirement 3: What range would you expect to see 95 percent of the time? (Negative amount should be indicated by a minus sign. Input your answers from lowest to highest to receive credit for your answers. Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimal places (e.g., 32.16).) Expected range of returns % to %
Bonds are thought to be a nice constant investment, paying a certain value of interest and then repaying your original investment [usually $1,000] after the bond term is up, usually in ten to thirty years.
Tool Makers, Inc. uses tool and die machines to produce equipment for other firms. The initial cost of one customized tool and die machine is $850,000. This machine costs $10,000 a year to operate. Each machine has a life of 3 years before it is repl..
Juggernaut Satellite Corporation earned $18 million for the fiscal year ending yesterday. The firm also paid out 30 percent of its earnings as dividends yesterday. The firm will continue to pay out 30 percent of its earnings as annual, end-of-year di..
A firm is considering the acquisition of a new machine. The base price is $85,000 and it would cost $15,000 to install. The machine is MACRS 3 year class property and it will be sold after 3 years for $17,000. What is the terminal cash flow at the en..
What is the annual opportunity cost of a checking account that requires a $300 minimum balance to avoid service charges? Assume an interest rate of 3%.
Assume that you are the portfolio manager of the Delaware Fund, a $4 million mutual fund that contains the following stocks: Stock Amount Beta A $ 400,000 1.50 B $ 600,000 0.50 C $1,000,000 1.25 D $2,000,000 0.75. The required rate of return in the m..
Suppose you are a U.S. investor who is planning to invest $245,000 in Japan. You do so at a starting exchange rate of 85.48 ¥/$. Your Japanese investment gains 8.2 percent, and the ending exchange rate is 89.85 ¥/$. What is your total return on this ..
Lawrence Keen is the President of the Safe Water Filter Company. As President, he is in control of the issuance of stocks and Bonds. Three years ago when the company needed cash, Lawrence purchased from the company a $100,000, 4 percent, 10-year unse..
A firm has $500 million of assets that includes $50 million of cash and 10 million shares outstanding. The firm uses $50 million of its cash to pay dividends. If an investor has 1000 shares, how many shares must he sell to create a homemade dividend ..
Decker Tires’ free cash flow for the current year equals $1.32 million. Analysts expect the company's free cash flow to grow by 30% next year, by 10% in the year after that, and at a constant rate of 5% thereafter. The WACC for this company 9.00%. De..
Abbott Lab made $2.80 net income per share last year and paid out $1.30 in dividend. The company had a book value (or equity) per share of $20. The market has a risk free rate of 3.1% and market return 11.1%. Abbott has a historical beta of .90. Wh..
Consider a 20 year, $1000 bond with a coupon rate of 9% and quarterly coupons. By looking at Bloomberg you can see that this bond has most recently traded at a price of $1462.62. Give two numbers (a,b) such that the yield to maturity of bond is betwe..
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