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Your broker offers to sell you some shares of Bahnsen & Co common stock that paid a dividend of $2 yesterday. You expect the dividend to grow at the rate of 5% per year for the next 3 years, and if you buy the stock, you plan to hold it for 3 years and then sell it. If you plan to sell the stock at the end of 3 years at $34.73 , what is most you should pay for it today? The discount rate you use is 12%.
If the investor anticipates higher interest rates, the investor should:
Compute the price of a zero-coupon bond (ZCB) that matures at time t=10 and that has face value 100. Compute the price of a forward contract on the same ZCB of the previous question where the forward contract matures at time t=4
Microtech Corporation is expanding rapidly and currently needs to retain all of its earnings; hence, it does not pay dividends. However, investors expect Microtech to begin paying dividends, beginning with a dividend of $0.75 coming 3 years from toda..
Estimate the average Social Security benefits for a retired couple. Assume that one spouse has a part-time job that pays him $21,000 a year, and that this person also receives another $44,000 a year from a company pension.
Company XYZ has issued bonds that have a 6% coupon rate, payable semi annually. The bonds mature in 16 years, have a face value of $1,000, and a yield to maturity of 8%. What is the price of the bonds?
Suppose you buy a 6.6 percent coupon bond today for $1,110. The bond has 7 years to maturity. What rate of return do you expect to earn on your investment? Two years from now, the YTM on your bond has increased by 2 percent, and you decide to sell. W..
The return on the Rush Corporation in the state of recession is estimated to be -23% and the return on Rush in the state of boom is estimated to be 31%. The return on the Oberman Corporation in the state of recession is estimated to be 41% and the re..
An asset used in a four-year project falls in the five-year MACRS class (MACRS Table) for tax purposes. The asset has an acquisition cost of $7,300,000 and will be sold for $1,770,000 at the end of the project. Required: If the tax rate is 30 percent..
Suppose an individual invests $38,000 in a load mutual fund for two years. The load fee entails an up-front commission charge of 4.2 percent of the amount invested and is deducted from the original funds invested. calculate the annual return on the m..
The Supreme Court of the Unites States recently upheld the Affordable Health Care Act. This act affects many businesses. How can we analyze the Healthcare situation as a valuation problem? If you were a private medical insurance company, how would yo..
You are valuing stock in Tofrandi Naturals and are estimating their Beta at 0.2, the risk free rate at 3.16%, and equity risk premium at 6.69. What is your required return in order to invest in this company?
You have just completed the forecasting process for a new project, and computed the project’s net present value to be ($500,000). You then want to understand the effect on this new project’s net present value of a $500,000 after-tax cash flow increas..
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