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Default Risk Premium
A company's 5-year bonds are yielding 9.7% per year. Treasury bonds with the same maturity are yielding 7.15% per year, and the real risk-free rate (r*) is 2.75%. The average inflation premium is 4%, and the maturity risk premium is estimated to be 0.1(t - 1)%, where t = number of years to maturity. If the liquidity premium is 1.4%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places.
The stock of Nogro Corporation is currently selling for $10 per share. Earnings per share in the coming year are expected to be $2. The company has a policy of paying out 50% of its earnings each year in dividends. The rest is retained and invested i..
Backwater Corp. has 10 percent coupon bonds making annual payments with a YTM of 9.2 percent. The current yield on these bonds is 9.55 percent. How many years do these bonds have left until they mature?
You are building a pipeline which will generate its first annual cash flow of $2m exactly 5 years from today. As it ages, the volume it transports, and hence the cash flows it creates, will decline by 3% per year. Exactly 27 years from today, this pi..
TIm Dye the CFO of Blackwell Aoutomotive, is putting together this year's financial statements. He has gathered the following Balance Sheet information: HOW MUCH LONG TERM DEBT DOES BLACKWELL AUTOMOTIVE HAVE?
Which of the following is a possible exception to the efficient-market theory?
The market value of the equity of Thompson, Inc., is $307,000. The balance sheet shows $22,000 in cash and $200,000 in debt, while the income statement has EBIT of $97,000, and a total of $136,000 depreciation and amortization. What is the enterprise..
If a corporation were to choose between issuing a debenture, a mortgage bond, or a subordinated debenture, everything else equal, which would sell for the greatest price?
You are considering a property that is leased for 4 years. As the lessor you would recieve the following cash flows (at the end of each year): $17,800 in Year 1, $19,000 in Year 2, $12,500 in Year 3, and $10,000 in Year 4. At the end of the period yo..
According to the MM extension with growth, what is Kitto's value of equity?
Discuss the differences in merger practices between U.S. companies and companies in other countries. What changes are occurring in international merger activity, particularly in Western Europe and Japan?
Which of the following would be classified as a financing activity on the statement of cash flows?
A friend asks whether he should open a savings account that pays 5 percent interest compounded semiannually or one that pays 5 percent interest compounded daily. What would you tell him or her, and why?
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