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Suppose that, holding yield constant, investors are indifferent as to whether they hold bonds issued by the federal government or bonds issued by state and local governments (that is, they consider the bonds the same with respect to default risk, information costs, and liquidity).
Suppose that state governments have issued perpetuities (or consols) with $75 coupons and that the federal government has also issued perpetuities with $75 coupons.
If the state and federal perpetuities both have after-tax yields of 8%, what are their pre-tax yields? (Assume that the relevant federal income tax rate is 39.6%.)
You own a lot in Key West, Florida, that is currently unused. Similar lots have recently sold for $1,370,000. Over the past five years, the price of land in the area has increased 5 percent per year, with an annual standard deviation of 28 percent. W..
WACC and Percentage of Debt Financing Hook Industries' capital structure consists solely of debt and common equity. What percentage of the company's capital structure consists of debt?
McGilla Golf has decided to sell a new line of golf clubs. The length of this project is seven years. The company has spent $1160456 on research and development for the new clubs. What is the NPV for this project?
A security produced returns of 11 percent, 7 percent, 9 percent, 13 percent, and -14 percent over the past five years, respectively. Based on these five years, what is the probability that this stock will earn more than 16.16 percent in any one given..
Superapp Inc. has just paid a dividend of $10 per share. Superapp pays dividends once a year, and dividends are expected to grow at 4% per year. Superapp’s equity beta is 1.5. The market risk premium is 8%, and the risk-free rate is 2%. Based on this..
Photochronograph Corporation (PC) manufactures time series photographic equipment. It is currently at its target debt-equity ratio of .64. It’s considering building a new $71.9 million manufacturing facility. This new plant is expected to generate af..
The March futures contract for corn is currently trading at $3.75 per bushel. Suppose you buy ten contracts for March delivery. If the contract closes in March at 3.875, what will your profit be (Each contract calls for delivery of 5,000 bushels of c..
The White House sees a recession on the horizon, but Congress is preoccupied with other issues and is slow to act. This delay is an example of...
General Matter’s outstanding bond issue has a coupon rate of 8.8%, and it sells at a yield to maturity of 8.00%. The firm wishes to issue additional bonds to the public at face value. What coupon rate must the new bonds offer in order to sell at face..
The Onboard Co. is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 17.4 percent a year for the next 3 years and then decreasing the growth rate to 4.6 percent per year. The company just paid its ..
Abe made the following transactions in a mutual fund: The fund paid a dividend of $2 per share
Assume that you manage a mutual fund with an expected rate of return of 18% and a standard deviation of 34%. The T-bill rate is 5.5%. An investor wants to invest in your fund and T-bills such that the standard deviation of the investor’s total portfo..
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