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Suppose you are the risk averse investor in problem 6.10 who has purchased the risky bond for $775. You knew it was junk because it was rated B by ABCD Ratings Agency. Unfortunately, minutes after you made the purchase, ABCD Ratings Agency downgrades the bond from B to C and explains that it now estimates the company faces a 50% chance of going bankrupt before the end of the year. Now the bond is considered riskier and the potential buyers require a higher default risk premium of, say, 10%. What is the price of the bond? If you sold it, what would be your % capital loss? Assume that a one year bond P=775 with F=1000, coupon rate=0.1, and YTM on risk free bond is 0.1. what the expected return on the bond is after the increase in the risk of default and as a result the new price of bond?
How does an open market sale of Treasury securities by the Fed affect the price of Treasury securities, the yield on Treasury securities, the monetary base, and the money supply?
Prepare a complete Statement of Cash Flows using both the direct methodandthe indirect methodof summarizing the cash flow from operating activities.
Suppose you hold 10 % of the equity of ABC. What is another portfolio you could hold that would provide the same cash? flows?
Grey Fox Aviation Company has an expected net operating profit after taxes, EBIT x (1 – Tax rate), of $13,800,000 in the coming year.
What is financial management and why is it so important to the success of a business
What is the size of your monthly payment?
Lee's Furniture just purchased $24,000 of fixed assets that are classified as 5-year MACRS property. The MACRS rates are 20 percent, 32 percent, 19.2 percent, 11.52 percent, 11.52 percent, and 5.76 percent for Years 1 to 6, respectively. What is the ..
Drongo Corporation's 3-year bonds yield 5.22%. The real risk-free rate is 2.21%. The maturity risk premium is estimated to be 0.07%(t-1), where t is equal to the time to maturity. The default and liquidity premiums for Drongo's bonds total 1% and are..
The only difference between Joe's and Moe's is that Moe's has old, fully depreciated equipment. Joe's just purchased all new equipment which will be depreciated
If the market demands 8.1 percent required rate on the bond, what is the price of the bond?
Stock is in equillibrium, current expected dividend yield on stock is _____per share
Use the following formula to calculate the standard deviation of the portfolio described in the table below.
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