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New Business Ventures, Inc., has an outstanding perpetual bond with a coupon rate of 11 percent that can be called in one year. The bond makes annual coupon payments. The call premium is set at $125 over par value. There is a 60 percent chance that the interest rate in one year will be 13 percent, and a 40 percent chance that the interest rate will be 9 percent. If the current interest rate is 11 percent, what is the current market price of the bond? Assume a par value of $1,000.
Assume that Stephanie might remain unemployed for an additional six months. Identify the possible ways that she could revise her personal cash budget and balance sheet to survive.
Suppose that the government of Michconsin imposes a tax on cheese curd production. - When will the efficiency costs of the tax be greater-in the short run or in the long run-and why?
You find a zero coupon bond with a par value of $10,000 and 27 years to maturity. The yield to maturity on this bond is 4.9 percent. Assume semiannual compounding periods. What is the price of the bond?
Piping Hot Food Services (PHFS) is evaluating a capital budgeting project that costs $75,000. The project is expected to generate after-tax cash flows equal to $26,000 per year for four years. PHFS's required rate return is 14 percent. Compute the pr..
We have 10,000 common shares of Procter and Gamble, each of which we bought for $38. The premium is $1.5, and the strike price is $45 per share. Expound on the results, in two different cases. In the first case, the market price rises to $60, and in ..
Suppose that you have placed money in 2 Funds: Fund A and Fund B. Fund A accumulates at 9% effective and Fund B at 8% effective. At the end of 10 years, the total of the two funds is 52,000. At the end of 8 years, the amount in Fund B is three times ..
A 10-year bond with semi-annual coupons is bought at a discount to yield 9% convertible semi-annually. If the amount for accumulation of discount in the next-to-last coupon (which was denoted by P19) is $8, find the total amount for accumulation of d..
An asset has had an arithmetic return of 11.8 percent and a geometric return of 9.8 percent over the last 84 years. What return would you estimate for this asset over the next 7 years? 22 years? 38 years?
We examined two very important topics in finance this week; Capital Budgeting and Dividend Policy.
Using any Internet source, find the annual value (current dollars) of Total Construction Put in Place in the United States for the three most recent years as reported by the U.S. Census Bureau.
Glorious Hutches has completed their first year of business. John Miller, the owner, has asked your company to calculate Annual Profits. Below are the specifics of the business operation for Year 1. Four employees work 8 hours/day for 5 days/week. Ov..
One of the following embedded options will decrease the required rate of return by bondholders if other factors are constant. What is it? (1) Bonds with call option (2) bonds with convertible option (3) straight bonds (4) bullet bonds
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