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Default Risk Premium
A Treasury bond that matures in 10 years has a yield of 5.25%. A 10-year corporate bond has a yield of 7.25%. Assume that the liquidity premium on the corporate bond is 0.7%. What is the default risk premium on the corporate bond? Round your answer to two decimal places.
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Your assignment this week is to analyze current financial ratios for a given business. Think of a specific business you find interesting, i.e. Apple, UTC, Southwest Airlines, etc. Search the web for that business’ “Financial Statement”. (You will fin..
If a stock has an expected return of 20% and a standard deviation of 25%. The risk-free rate is 10%. What is the reward-to-variability ratio?
Machine Acosts $9000 to purchase and $5000 per year to operate. It lasts for 6 years, and has nosalvage value at the end of its life. Machine B costs $16,000 to purchase and $4000 per year to operate.It lasts for 9 years and has a salvage value of $4..
Hot Teas common stock is currently selling for $41.04. The last annual dividend paid was $1.31 per share and the market rate of return is 11.2 percent. At what rate is the dividend growing?
Suppose the price of a share XYZ is 100 at t=0. At t=1, the share-price either increases to 108 or decreases to 88. At t=2, the share-price will either be 120, or 96 (if the share goes up at t=1 and goes down at t=2 and if it goes down at t=1 and goe..
Dahlia Enterprises needs someone to supply it with 122,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you’ve decided to bid on the contract. It will cost you $890,000 to install the equipment n..
The stock of Nogro Corporation is currently selling for $30 per share. Earnings per share in the coming year are expected to be $6. The company has a policy of paying out 50% of its earnings each year in dividends. By how much does its value exceed w..
Johnson Products earned $3.10 per share last year and it paid out $.75 dividend. The company’s ROE is 16%. a) Calculate the dividend payout ratio; b) Calculate the sustainable growth rate of the company.
Consider the following simplified financial statements for the Yoo Corporation (assuming no income taxes): What is the external financing needed?
bonds issued elsewhere often have annual coupon payments.
This leads the CFO to ask you team to look at how the market value of ACME is compared to the industry and research how you can show not only this value but come up with justification for the capital investments being made. Compare and contrast the r..
David Ortiz Motors has a target capital structure of 45% debt and 55% equity. The yield to maturity on the company's outstanding bonds is 10%, and the company's tax rate is 40%. Ortiz's CFO has calculated the company's WACC as 10.31%. What is the com..
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