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1. A company must pay a liability of L due one year from now and 2L due two years from now. The company exactly (absolutely) matches the liabilities by buying a one-year bond with a face value of $800 and a two-year bond with face value of $2,000. Both bonds have annual coupons with a coupon rate of r for the one-year bond and 1.25r for the two-year bond. Determine r.
2. Pat sells a stock short for a price of $220. The stock pays no dividends. The margin requirement is 50% of the short sale price. The margin account earns an annual rate of 6%. The rate of return on the short sale is 10%. The stock is purchased in one year for X Determine the price X at which the stock is purchased.
What does the IRR rule say about whether you should accept this opportunity? If the cost of capital is 7.6%, what does the NPV rule say?
John is willing to pay up to $4.50 for one vanilla ice cream cone. Frozen Laredo, on the other hand, incurs a cost of $1.85 to serve one vanilla ice cream cone. If the market price is $3.10 per vanilla ice cream cone, how are consumer surplus and pro..
Cash equation. Sunset, inc., has a book value of equity of $13,205. Long-term debt is $8,200. Net working capital, other than cash, is $2,205. Fixed assets are $18,380. How much cash does the company have? If current liabilities are $1,630, what are ..
The interest rate is 5 percent per year. The time to expiration of both options below is 6 months.
An associate of yours is offering your firm to buy an oil well that will produce 1,000,000barrels of oil next year. Assume for simplicity that the oil is available at the end of theyear. The well will be closed forever after that. What is the max..
Using the ten-step binomial tree, what is the volatility rate that sets the value of the call option equal to the call option’s settlement price?
Which calculation is used in a major capital budgeting decision whn comparative analysis is being used?
A firm has a debt-to-equity ratio of 1. Its cost of equity is 12%, and its cost of debt is 6%. what would be its cost of equity if debt-to-equity ratio were 0
Do the International Monetary System's policies support or impede the progress of developing economies? Do these policies encourage or discourage investment in these developing economies?
Debt is generally cheaper then equity so why don’t companies finance themselves almost completely with debt? How much debt is too much debt? Why would issuing additional debt bring a benefit to shareholders in terms of increased return on equity? Be ..
What is the present value of the following annuity? $2,567 every year at the end of the year for the next 10 years, discounted back to the present at 13.43 percent per year, compounded annually? round answer to two decimal places.
The Portfolio Balance Model assumes a country has foreign denominated assets,
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