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You wish to invest your savings of $20,000 in government securities for the next 2 years. Suppose that currently you can invest either in a security that pays interest of 8% per year for the next 2 years or in a security that matures in 1 year, but pays only 6% interest. If you make the latter choice, you would then reinvest your cash flow at the end of the first year for another year.
A. Why might you choose to make the investment in the 1-year security that pays an interest rate of only 6%, as opposed to investing in the 2-year security paying 8%? Provide numerical support for your answer.
B. Which Theory of term structure of interest have you supported in your answer?
C. Assume your required rate of return on the second-year investment is 11%; otherwise, you will choose to go with the 2-year security. What rationale do you offer for your preference?
The 14-year, $1,000 par value bonds of Waco Industries pay 12 percent interest annually. The market price of the bond is $1,115, and the market's required yield to maturity on a comparable-risk bond is 9 percent. Compute the bond's yield to maturity.
A firm issues a 10-year Eurobond with a par value of JPY 10 billion. Annual interest payments of 2.2% are calculated based on par value. If the issue price is 101 percent, what is the cost of debt?
Suppose the government of an ocean-side municipality is trying to determine how to best deal with water pollution along its shoreline.
Rule Making The Food and Drug Administration (FDA), a federal administrative agency, is charged with enforcing the Food, Drug, and Cosmetic Act. This statute mandates that the FDA limit the amount of poisonous or deleterious substances in food.
Presented below is information related to equipment owned by Suarez Company at December 31, 2014. Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2014.
Carter Enterprises can issue floating-rate debt at LIBOR +1 percent or fixed-rate debt at 9.00%. Brence Manufacturing can issue floating-rate debt at LIBOR +2.4% or fixed-rate debt at 12%. What is the net payment for Brence if they engage in the swap..
An investor in the 20% Marginal tax bracket is looking at buying Harrisburg, PA notes. The Yield is 4.25% on the notes. What is the Taxable Equivalent Yield?
Calculate the price of the bond you have selected. Is the bond selling at a Premium or Discount and why?
SDJ, Inc., has net working capital of $3,490, current liabilities of $4,950, and inventory of $4,990. What is the current ratio? What is the quick ratio?
In the Industrial Supply Company example (Table 4.4) it was assumed that the company’s fixed assets were being used at nearly full capacity and that net fixed assets would have to increase proportionately as sales increased.
Lang Industrial Systems Company (LISC) is trying to decide between two different conveyor belt systems. System A costs $240,000, has a four-year life, and requires $75,000 in pretax annual operating costs. Calculate the EAC for both conveyor belt sys..
What special compensations (retirement, etc.) comes along with being a member of the Texas Legislature? What is the average net worth of a member of the Texas House of Representatives and the Texas Senate? Why is this important?
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