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Jenny's son is planning on starting college in 5 years, and Jenny is planning on investing in bonds today to help him pay for his tuition when he starts college. She is choosing between two bonds. Bond A has a YTM of 10%, and a coupon rate of 8%, and 5 years until maturity. Bond B has a YTM of 9%, a coupon rate of 16%, and 7 years until maturity. Both have a par value of $1000 and annual coupon payments. Jenny wants her investment to have zero interest rate risk. Which bond should she purchase? Why?
Hooper Printing Inc. has bonds outstanding with 19 years left to maturity. The bonds have an 7% annual coupon rate and were issued 1 year ago at their par value of $1,000. However, due to changes in interest rates, the bond's market price has fallen ..
During 2014, Paul sells residential rental property for $300,000, which is acquired in 1994 for $150,000. Paul has claimed straight-line depreciation on the building of $57,525. What is th4e amount and nature of Paul's gain on the sale of the rental ..
Hastings estimates that if it acquires Vandell, interest payments will be $1,500,000 per year for 3 years after which the current target capital structure of 30% debt will be maintained. What is the unlevered value of Vandell? Vandell's beta is 1.10...
Dividend valuation with a constant growth model is similar to a growing perpetuity problem. Yield to maturity reflects the current market rate and it is the appropriate discount rate that matches the present value of the bond's cash flow stream and p..
Loaded-Up Fund charges a 12b-1 fee of 1% and maintains an expense ratio of 0.60%. Economy Fund charges a front-end load of 2%, but has no 12b-1 fee and an expense ratio of 0.40%. Assume the rate of return on both funds’ portfolios (before any fees) i..
Texas Chemicals is a major producer of oil-based fertilisers in the US. The company’s stock is currently selling for $80 per share and there are 10 million shares outstanding. The company also has debt outstanding with a market value of $400 million...
Which of the following methods can be used to improve the firm's cash conversion cycle? a) decrease the firm's inventory conversion cycle. b) increase the firm's receivables collection period. c) decrease the firm's payables deferral period.
Organisations' behaviour is guided by financial data. In the short term, such data will help determine operational expenditures; in the long term, historical data may help generate forecasts aimed at determining strategic plans. In both instances.
ABC Co. has warrants that allow the purchase of two shares of its common stock at $30 per share. The common stock price per share is $33 and the market value of the warrant is $8. Calculate the intrinsic (theoretical) value of the warrant and its mar..
Assume that an investor acquired a property 5 years ago at a cost of $ 200000. The property was 15 years old at the time of purchase and was financed with a 75% mortgage at 11% interest for 25 years. The investor uses a straight line depreciation wit..
Miltmar Corporation will pay a year-end dividend of $5, and dividends thereafter are expected to grow at the constant rate of 7% per year. The risk-free rate is 4%, and the expected return on the market portfolio is 16%. The stock has a beta of 0.75...
A pay day loan is structured to obscure the true rate you are paying. For example, in Washington, you pay a $31 "fee" for a two-week $180 loan (when you repay the loan, you pay $211). What is the effective annual interest rate for this loan? Assume 2..
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