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Consider a mutual savings bank (depositors are the owners of the bank) with 1000 depositors. In the beginning of a year, each depositor makes $100,000 deposit. The bank holds 10% of the total deposit in vault cash. The remaining deposit is invested in a project with a 10% rate of return at the end of the year. However, if the bank liquidates it investment, it only gets 50% of its initial investment back. For simplicity, we assume that this mutual saving bank does not have to comply to any reserve requirement.
a. Suppose the bank does not have to liquidate its investment project, what is the return after a year on each deposit account?
Suppose 10 depositors decide to withdraw all their deposit after a month. What is the return after a year on each remaining deposit account?
Suppose every depositor thinks that more than 20% of depositors will withdraw after a month, what should a depositor do? What is the return on each deposit account in this case?
A stock has an annual return of 11.6 percent and a standard deviation of 47 percent. What is the smallest expected gain over the next year with a probability of 1 percent?
Blue Bull, Inc., has a target debt-equity ratio of .73. Its WACC is 8.7 percent, and the tax rate is 38 percent. If the company’s cost of equity is 11.3 percent, what is its pretax cost of debt?
Prepare a term paper on Do dividends grow at the same rate as earnings and is the Gordon Model fact or fiction
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Kyle Parker of Fayetteville, Arkansas, has been shopping for a new car for several weeks. So far, he has negotiated a price of $27,000 on a model that carries a choice of a $2500 rebate or dealer financing at 2 percent APR. The dealer loan would requ..
Calculate the expected return over the 4-year period for each of the three alternatives. Calculate the standard deviation of returns over the 4-year period for each of the three alternatives. Use your findings in parts a and b to calculate the coeffi..
Debt capacity is often given as a reason for the value of the stock falling when equity is issued. The reason for this is:
How much would you be willing to pay (rounded to the nearest dollar) for a 20-year annuity due if the payments are $4,500 per year and you want to earn a rate of return equal to 5.5% per year?
A pocalyptica Corp. pays a constant $29 dividend on its stock. The company will maintain this dividend for the next 13 years and will then cease paying dividends forever. If the required return on this stock is 10 percent, what is the current share p..
You have purchased a call option contract on Smith & Smith common stock. The option contract is for 100 shares. The option has an exercise price of $43.00 and S & S’s stock currently trades at $40.00. The option premium is quoted at $2.00. If the sto..
If the investor company owns 30% of the stock of the investee company and the investee company reports profits of $ 150,000, then the investor company reports equity income of
The duties of an agent to her principal are loyalty, obedience, performance and which of the following: Administrative law agencies usually have three types of authority.
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