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Loretta agrees to lend Ted $750,000 to buy computers for his consulting firm. They agree to a nominal interest rate of 9%. Both expect the inflation rate to be 3%.
i. Calculate the expected real interest rate: ________%
ii. If inflation turns out to be 4% over the life of the loan, what is the ex post (actual) real interest rate? ________% Who gains from the unexpectedly high inflation, Loretta or Ted? ________
iii. If inflation turns out to be 2% over the life of the loan, what is the ex post (actual) real interest rate? ________%
iv. Who gains from the unexpectedly low inflation, Loretta or Ted?
What are capital gains? When is a capital gain considered short-term? When is it considered long-term? Why is this distinction important?
Which one of the following statements is accurate for a levered firm?
Company XYZ had $410 million in sales last year, and it had $75 million of fixed assets that were being operated at 80% of capacity. How large could sales have been (in Millions) if the company had operated at full capacity?
A 4.25 percent coupon municipal bond has 13 years left to maturity and has a price quote of 105.10. The bond can be called in eight years. The call premium is one year of coupon payments. (Assume interest payments are semiannual and a par value of $5..
Crisp Cookware's common stock is expected to pay a dividend of $2.5 a share at the end of this year (D1 = $2.50); its beta is 0.70; the risk-free rate is 5.2%; and the market risk premium is 5%. The dividend is expected to grow at some constant rate ..
You will have the opportunity in this Discussion to recommend sound internal controls over sales invoices and receivables. If controls are not in place over these functions, companies are susceptible to errors, fraud, and losses. In the following sce..
Sock Figaro has a standard deviation of 25% and a beta of 0.9. Sock Almaviva has a standard deviation of 15% and a beta of 1.1. Figaro has the most risk, and both will have the same expected return. Figaro has the most risk, and Almaviva will have t..
Ace Software, Inc. is contemplating replacing some existing equipment with some new hardware. The existing equipment, carried on the books at $800, is being depreciated using the straight-line method to a salvage value of $80 over its remaining life ..
The cost of preferred stock, rp, used in the weighted average cost of capital equation is calculated as the preferred dividend, Dp, divided by the current price of the preferred stock, Pp. ,tax adjustment is made when calculating rp because preferred..
ABC Company sells 4,595 chairs a year at an average price per chair of $144. The carrying cost per unit is $39.13. The company orders 486 chairs at a time and has a fixed order cost of $71.1 per order. The chairs are sold out before they are restocke..
Which of the following is not true about stock?
You are thinking of purchasing a house. The house costs $350,000. You have $50,000 in cash that you can use as a down payment on the house, but you need to borrow the rest of the purchase price. The bank is offering a 30-year mortgage that requires a..
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