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Based on the following information concerning Bank One’s bonds: Par value: $1,000 Years to maturity: 15 years Coupon rate: 8% paid semiannually Beta: 0.1 Risk-free rate: 4% Market risk premium: 5% What is the expected price of the bond in 5 years? You believe that the risk free rate then will remain at 4% but the market risk premium is like to rise to 10% due to a worsening economic outlook. Select one: a. $1,256.86 b. $1,233.84 c. $1,274.01 d. $1,282.64 e. $1,263.87
Your bank says that they will loan you money based on a 90% loan-to-value ratio. The seller has accepted your offer for $150,000 but the appraiser arrived at an appraised value of $145,000. Calculate the amount of your loan and the amount of your dow..
Which of the following would impact the rating of a bond?
Mullet Technology is planning an IPO. The company and its underwriter agree that the current value of equity of Mullet is $80 million. Mullet currently has 5 million shares outstanding and will issue 2 million new shares. The underwriter charges a 7%..
An investor purchases a 1000 bond redeemable at par that pays semiannual coupons at a nominal rate of 8% compounded semiannually and matures in ten years. The bond will yield an annual rate of 7% convertible semiannually to maturity. If the bond is c..
This problem concerns the effect of taxes on the various break-even measures. Consider a project to supply Detroit with 25,000 tons of machine screws annually for automobile production. Calculate the accounting, cash, and financial break-even quantit..
Stocks A, B, and C have expected returns of 14 percent, 14 percent, and 11 percent, respectively, while their standard deviations are 48 percent, 29 percent, and 29 percent, respectively. If you were considering the purchase of each of these stocks a..
When it comes to social responsibility, while the hope is that corporations will place an emphasis on their reputation and this will create wealth or an organization and that shareholders will perceive actions as what is good to do, in the short run,..
Clumsy Corp. is planning to issue new 30-year bonds. Initially, the plan was to make the bonds non-callable. If the bonds were made callable after 10 years at a 10% call premium, how would this affect their required rate of return?
Venus, Inc. wishes to evaluate a proposed merger into the Mars, Inc. Venus had 2012 earnings of $250,000, has 100,000 shares of common stock outstanding, and expects earnings to grow at an annual rate of 9%. Calculate the expected earnings per share ..
A corporation is going to have to pay a debt of $1,200,000 after one year, a debt of $1,500,000 after 2 years and $2,000,000 after 3 years. In order to set up an absolute matching strategy to pay these debts, the corporation may purchase: The spot ra..
Calculating Returns (CFA1) Looking back at Problem 12, suppose the call money rate is 5 percent and your broker charges you a spread of 1.25 percent over this rate. You hold the stock for six month and sell at a price of $65 per share. What is your e..
Moerdyk Corporation's bonds have a 10-year maturity, a 6.25% semiannual coupon, and a par value of $1,000. The going interest rate (rd) is 5%, based on semiannual compounding. What is the bond's price?
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