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The 10-year $1,000 par bonds of Vail Inc. pay 15 percent interest. The market's required yield to maturity on a comparable-risk bond is 19 percent. The current market price for the bond is $900.
a. Determine the yield to maturity.
b. What is the value of the bonds to you given the yield to maturity on a comparable-risk bond?
c. Should you purchase the bond at the current market price?
Suppose that an investment of $4200 earns an interest rate 7% per year compounded continuously. Find the time it takes this investment to double as follows: What would the balance be if the investment doubled.
Your company has been approached to bid on a contract to sell 4,000 voice recognition (VR) computer keyboards a year for four years. Due to technological improvements, beyond that time they will be outdated and no sales will be possible. What bid pri..
A corporation is selling an existing asset for $21,000. The asset, when purchased, cost $10,000, was being depreciated under MACRS using a five-year recovery period, and has been depreciated for four full years. If the assumed tax rate is 40 percent ..
Without changing anything regarding its product or operations, the CEO of a company wants to increase the ROE of his company. What could he possibly do? Be sure to state the steps.
A $2,300 face value corporate bond with a 6.2 percent coupon (paid semiannually) has 12 years left to maturity. It has had a credit rating of BBB and a yield to maturity of 6.7 percent. The firm has recently gotten into some trouble and the rating ag..
Your firm invested $2,497,700 in 310-day commercial paper today. At the end of the investment period (in 310 days) the firm will receive $2,596,100. What is the 310-day holding period rate of return on the investment? What is the effective annual rat..
Capital budgeting can be affected by exchange rate risk, political risk, transfer pricing, and strategic risk. Explain how these factors may and can impact capital budgeting.
From the investor's point of view, analyze the advantages and disadvantages of the three investment alternatives—common stock, bonds, and preferred stock. Why would an investor select an investment in bonds over common stock, even if the return on th..
Several years ago the Jakob Company sold a $1,000 par value, noncallable bond that now has 20 years to maturity and a 7.00% annual coupon that is paid semiannually. The bond currently sells for $950, and the company's tax rate is 40%. What is the com..
What is a budget deficit? How are budget deficits financed? Why do Keynesians believe that budget deficits will increase aggregate demand?
What is the stock price for Omega Technology and what arbitrage opportunity is available? What assumptions are necessary to exploit this opportunity?
When we look at business ventures we are always looking for ways to raise capital in order to help our business grow over time. What are call and sinking fund provisions? Do these provisions make bonds more or less risky?
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