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Suppose that a Detroit municipal bond was bought at issue for $5,000. Its maturity was ten years, the face value was $6,000 and the coupon rate was 5%. a) What was the initial yield to maturity? b) Suppose that in year 5 the coupon was cut to 2% and the face value was cut by $5,250 due to bankruptcy. What annual return did the bond holder experience? Is it greater than or less than the yield ot maturity? Why? c) If the bond holder could have sold in year four at a price of $5,100 (after receiving the year 4 coupon) would s/he have been better off than waiting until year 5 and experiencing the bankruptcy (as described in part b))? Explain.
The payments are expected to go on indefinitely and the interest rate is 12%. What is the value of the growing perpetuity?
What is the firm's horizon, or continuing, value? What is the firm's intrinsic value today, P0?
The bonds have a $1000 par value, and the coupon rate is 5%. What is their yield to maturity? What is its net income?
Jarrod has $20 in his wallet, but his bank accounts are empty. What is Jarrod's liquidity ratio? What does this ratio indicate about Jarrod's financial position?
Assume that you wish to take a bet on the yield spread between two bonds: a 10-year corporate bond rated BB and a 10-year Treasury bond. Are you betting that rates are going to converge or diverge? Why? Which bond will you buy and which bond will you..
The bond has 12 years to maturity. What rate of return do you expect to earn on your investment?
The sharpetouch company is evaluating the proposed acquisition of a new molding machine. the machines purchase price is $108,000 and it would cost another $12,000 to modify it for it to be operational. the machine falls into the MACRS three year clas..
Consider a [30%, 100%] super senior tranche , and a index CDS spread of 200 bps for 5 years maturity assuming 0% recovery and 0% interest rates. We’ll be pricing this tranche using one factor gaussian copula. What is the tranche expected loss ?
What are the IRRs of these two projects? If you are told only the IRRs of the projects, which would you choose?
Perform step three of the revenue recognition model and determine the transaction price
uses LIFO for valuing inventories held in the United States and FIFO for inventories produced and held in its foreign operations.
Florida Company (FC) and Minnesota Company (MC) are both service companies. Their stock returns for the past three years were: FC: -5%, 15%, 20%; MC: 8%, 8%, 20%. Calculate the variances and standard Deviation of returns for FC and MC.
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