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Ariel purchased a 20-year corporate bond with a 12% coupon rate (payments made semiannually) and par value of $1000 for $1300. Six months later, after receiving a coupon payment, Ariel sold the bond. At the time of the sale, the market interest rate for this type of bond was 10%. What was Ariel’s rate of return? (The rate of return is simply Ariel’s percentage gain from this transaction. That is, the amount of extra money he made as a fraction of what he paid for the asset initially. This is explained in your reading on Moodle titled Understanding Interest Rates)
Show that if a coupon bond with N years of maturity sells at its face value (“at par”), then its coupon rate must equal its yield to maturity.
Find evidence from published data on past rates of inflation in the U.S. to support your explanation of the downward slope of past yield curves. What happened to the rate of inflation after the yield curve was sloping downward?
You have just arranged for a $1,740,000 mortgage to finance the purchase of a large tract of land. The mortgage has an APR of 7.4 percent, and it calls for monthly payments over the next 20 years. However, the loan has an eight-year balloon payment, ..
A company just paid a $2 per share dividend on its common stock (D0=$2.00). the dividend is expected to grow at a constant rate of 7 percent per year. the stock currently sells for $42 a share. if the company issues additional stock, it must pay its ..
Develop an insight into the pricing of financial instruments
When calculating WACC and applying the results to both unlevered (no debt) and levered (debt) firms, the levered firm is shown to be more valuable. Two identical firms and the firm with debt is more highly valued. Does this make sense? Why or Why not..
Use the following information about Rat Race Home Security, Inc. to answer the questions: Average selling price per unit $335. Variable cost per unit $192 Units sold 349 Fixed costs $6,564 Interest expense 17,146 Based on the data above, what will be..
Credit unions and Internet-only banks typically offer
You own a portfolio equally invested in a risk-free asset and two stocks. If one of the stocks has a beta of 1.50 and the total portfolio is equally as risky as the market, what must the beta be for the other stock in your portfolio?
A five-year project has an initial fixed asset investment of $290,000, an initial NWC investment of $26,000, and an annual OCF of −$25,000. The fixed asset is fully depreciated over the life of the project and has no salvage value. If the required re..
A company has $6.90 per unit in variable costs and $4.60 per unit in fixed costs at a volume of 50,000 units. If the company marks up total cost by 0.50, what price should be charged if 58.000 units are expected to be sold?
How does a company raise money (capital) for their projects? KOOKIS, Inc., has 3M shares of common stock, $20 per share. What is the market value of common equity? The company has 1M shares of preferred stock, $10 per share. What is the market value ..
Herm Mueller has invested in a fund that will provide him a cash flow of $11,700 at the end of each of the next 20 years. If the interest rate is 8.5 percent, what is the present value of these cash flows?
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