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The following is from the Annual Report for 2007 for the Vanguard 500 Index Fund: The Federal Reserve Board extended its money-tightening campaign during the first half of the year, raising its target for the federal funds rate four times.
The Fed then paused, leaving the target rate unchanged at 5.25% for the rest of the year and inflation fears eased. Bond yields declined in the second half of the year, and short term yields were higher than longer-term yields.
a. What do economists call the situation in which short-term yields are higher than long-term yields?
b. Long-term bonds are exposed to greater interest-rate risk and have lower liquidity than short-term bonds. Why, then, would any investor buy long-term bonds if their yields are lower than those of short-term bonds?
Halestorm Corporation’s common stock has a beta of 1.26. Assume the risk-free rate is 5.1 percent and the expected return on the market is 12.6 percent. What is the company’s cost of equity capital?
The current stock price of a company is $68 and the stock is expected to have a dividend yield 3% per year. The instantaneous risk free rate of return is 3.5%. The instantaneous standard deviation of its stock is 35%. You wish to purchase options on ..
You are to prepare a research report on the stock, STE - Steris Corp. - Medical Appliances & Equipment. What I am looking for is not a download of past history, not a copy of text taken from a 10-K.
Time Value of Money calculations always use compound interest - You must adjust the interest rate and the number of periods to be consistent with compounding periods.
You are the financial analyst for a tennis racket manufacturer. The company is considering using graphite like material in its tennis rackets. The company has estimated the information in the following table about the market for a racket with the new..
How might a savings and loan association use Treasury bond futures to hedge its fixed-rate mortgage portfolio?- Explain how prepayments on mortgages can limit the effectiveness of the hedge.
You want to purchase a corporate bond. Ford has one available that matures in 2026 and is currently quoted at 108.75. You see that the coupon rate is quoted as 6.5 and the bond pays coupons on June and December 30th.It is now July 7th.What is the pri..
You own a portfolio equally invested in a risk-free asset and a risky stock. If the beta (B) of the overall portfolio...… what is the beta for the risky stock in your portfolio?
Compare and appraise theories that underlie current thinking in Corporate Finance and Investment, demonstrate and evaluate how these theories can be applied in practical situations,
A $150,000, 15-year, monthly payment mortgage loan carries an interest rate of 5.5%, plus three points. The points are financed. What is the lender’s expected annual yield if the loan is amortized over the full 15 years?
A small business owner visits her bank to ask for a loan. The owner states that she can repay a loan at $1,100 per month for the next three years and then $2,200 per month for two years after that. If the bank is charging customers 7.75 percent APR, ..
Suppose that you are the manager of a newly formed retirement fund. You are to set up a series of semiannual payments to accumulate a sum of $1,000,000 in ten years. What is the required semiannual payment, to the nearest dollar? Suppose that immedia..
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