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Suppose that the monthly log returns of GE stock, measured in percentages, follow a smooth threshold GARCH (1, 1) model. For the sampling period from January 1926 to December 1999, the fitted model is
where all of the estimates are highly significant, the coefficient 10 in the exponent is fixed a priori to simplify the estimation, and {?t} are iid N (0, 1). Assume that a888 = 16.0 and = 50.2. What is the 1-step ahead volatility forecast (1)? Suppose instead that a888 = -16.0. What is the 1-step ahead volatility forecast (1)?
Firm can use retained earnings without paying a flotation cost. Therefore, while the cost of retained earnings is not zero, the cost of retained earnings is generally lower than the after-tax cost of debt financing. The capital structure that minimiz..
You just took a $125,000, seven-year loan. Payments at the end of each month are flat (equal in every month) at an annual interest rate of 4.75 percent. Calculate the monthly payment
You have just arranged for a $1,540,000 mortgage to finance the purchase of a large tract of land. The mortgage has an APR of 5.4 percent, and it calls for monthly payments over the next 22 years. However, the loan has an eight-year balloon payment, ..
ABC Company has an after-tax cost of debt of 6 percent, beta of .85, tax rate of 35 percent, and a target capital structure of 60 percent equity and 40 percent debt. Ten year Treasury securities are yielding 4 percent and the risk premium for ABC ..
A firm offers terms of 1/10, net 25. What effective annual interest rate does the firm earn when a customer does not take the discount? What effective annual interest rate does the firm earn if the discount is changed to 2 percent?
Your firm is contemplating the purchase of a new $625,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $69,000 at the end of that time. You will save $255,000 before..
A bond has a coupon rate of 3.25%, pays coupons semiannually, and has a maturity of 10 years. If the yield to maturity is 3.50%, calculate the current cost of a bond with a par value of 100. What is the current yield on the bond? What would be the va..
If a stock’s risk increases but its expected rate of growth in earnings and dividends remain constant, then the new equilibrium price of the stock will almost certainly increase. If the market is strong-form efficient, all stocks will be equally risk..
ABC Corporation (ABC) now operates as a “regular” C corporation, but it is considering a switch to S Corporation status. ABC is owned by 100 stockholders who each hold 1% of the stock, and each faces a personal tax rate of 35%. How much more (or less..
A one-month bill for $100,000 is issued at a discount of $1000. What is the rate of discount? the equivalent yield? the price at which the bill will trade with two weeks remaining to maturity (market interest rates unchanged)?
You’re considering investing in a project with the following characteristics: The discount rate for all cash flows is constant and equal to 20% per year. The investment of $400 can be depreciated to zero book value over 10 years. Compute the NPV of t..
Use Black Scholes to Value the put and call given the following criteria. The stock price six months from the expiration of an option is $13.50, the exercise price of the option is $13, the risk free interest rate is 10 percent per annum, and the vol..
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