Reference no: EM132666302
Q1: What is the current ratio? What is its purpose? How does this ratio measure liquidity? Explain how the current ratio can be easily manipulated, providing a detailed illustration and example of how it can be manipulated.
Q2: Apply the Yield to Maturity (YTM) calculation to the following bond and explain your calculation and how to interpret it. What is the YTM of a bond with a current price of $962 maturing at par value in 7 years with semi-annual dividends and a coupon of 6%?
Q3: Interest rates and bond prices, move inversely. For example, when interest rates decline, bond prices increase; when interest rates increase, bond prices decrease. Provide a quantitative example, illustrating the effect of interest rates on bond pricing? As well, explain how the length of bond maturity and higher/lower coupon rates can affect bond prices when interest rates rise and fall in the economy.
Q4: Provide the issues or disadvantages of a dividend discount model (Gordon Growth Model) for equity and give a detailed quantitative example and interpretation. Use the following to calculate, D0=$2.20, g=5%, No debt, Beta 1.2, Rf = 3%, Rm = 10%. Solve for K (WACC) and Intrinsic Value to complete.
Q5: Calculate the following NPV. Calculate the discount rate (Rf=3%, B=1.0, Excess Return=10.2%) and apply to the following cash flows:
CF0=$100,000
CF1=$20,000
CF2=$50,000
CF3=$45,000
CF4=$65,000
Is there a positive NPV? Explain the results of your answer.
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