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Maturity Risk Premium
An investor in Treasury securities expects inflation to be 2.05% in Year 1, 2.75% in Year 2, and 4.15% each year thereafter. Assume that the real risk-free rate is 1.75%, and that this rate will remain constant. Three-year Treasury securities yield 6.50%, while 5-year Treasury securities yield 7.55%. What is the difference in the maturity risk premiums (MRPs) on the two securities; that is, what is MRP5 - MRP3? Round your answer to two decimal places.
Your portfolio has a beta of 1.27. The portfolio consists of 17 percent U.S. Treasury bills, 29 percent in stock A, and 54 percent in stock B. Stock A has a risk-level equivalent to that of the overall market. What is the beta of stock B?
You bought a stock last year that grows by 10% every year. You decide that you will both hold onto that stock for another year and sell it, or you will sell it now and buy a different stock. If you are taxed 40% on half (50%) of the profit you make, ..
Measured in today's pounds using a required rate of return of 14%. What is the break- even salvage value of this project?
The New Zealand dollar and U.S. dollar S($/NZD) spot exchange rate is 0.6717. The Japanese yen and U.S. dollar S(¥/$) spot exchange rate is 120.12. What is the cross-exchange rate between yen and NZD, S(¥/NZD)? If there is arbitrage opportunity, stat..
A new security system has a price-tag of $8,000.00, but should save your company $3,000.00 each year for the next 10 years in reduced thefts. What is the IRR of the security system?
Xytex Products just paid a dividend of $1.97 per share, and the stock currently sells for $44. If the discount rate is 11 percent, what is the dividend growth rate?
Lemon Auto Wholesalers had sales of $1,550,000 in 2013 and cost of goods sold represented 78 percent of sales. Selling and administrative expenses were 13 percent of sales. Depreciation expense was $13,000 and interest expense for the year was $9,000..
Compute the effective cost of not taking the cash discount under the following trade credit terms:
You and your wife are making plans for retirement. You plan on living 25 years after you retire and would like to have $75,000 annually on which to live. Your first withdrawal will be made one year after you retire and you anticipate that your retire..
What is the impact on earnings before interest and taxes (EBIT) of the 50% increase/decrease in sales? Explain using the concept of leverage.
One of your corporate clients has approached you about whether or not its employees are required to include certain benefits provided by the corporation in their income. In particular, the corporation has inquired whether the following benefits provi..
Valuate berkshire hathaway (BRK) with two different methods. Use discounted cash flows in conjunction with an appropriate ratio. How does the share price compare to the calculated valuations?
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