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What is the expected return on a bond if the return is 9% two-thirds of the time and 3% one-third of the time? What is the standard deviation of the returns on this bond? Would you prefer this bond or one with an identical expected return and a standard deviation of 4.5? Why?
The Jones Company debits prepaid insurance for the insurance premiums paid. During the year insurance expense is computed for interim periods and insurance expense is debited and prepaid insurance is credited. Information for the year ended Dec 31, 2..
Suppose you observe the following situation: Security Beta Expected Return Peat Co. 1.20 11.2 Re-Peat Co. 1.00 9.6 Assume these securities are correctly priced. Based on the CAPM, what is the expected return on the market? What is the risk-free rate?
The efficiency gains resulting from a just-in-time inventory management system will allow a firm to reduce its level of inventories permanently by $379,000. What is the most the firm should be willing to pay for installing the system?
The Walgreen Corporation is contemplating a new investment that it plans to finance using one-third debt. The firm can sell new $1000 par value with a 15-year maturity at a price of $953 that carry a coupon interest rate of 12.1 percent that is paid ..
All the following statements concerning “net gifts” are correct EXCEPT:
A reverse annuity mortgage is made with a balance not to exceed $300,000 on a property now valued at $700,000. The loan calls for monthly payments to be made to the borrower for 120 months at an interest rate of 11% MEY. What will the monthly payment..
The Chester Company has just purchased $40,900,000 of plant and equipment that has an estimated useful life of 15 years. The expected salvage value at the end of 15 years is $4,090,000. What will the book value of this purchase (exclude all other pla..
Your portfolio is diversified. It has an expected return of 10.0% and a beta of 1.10. You want to add 500 shares of Tundra Corporation at $30 a share to your portfolio. Tundra has an expected return of 14.0% and a beta of 1.30. The total value of you..
Your firm has an average collection period of 29 days. Current practice is to factor all receivables immediately at a 1.25 percent discount. What is the effective cost of borrowing in this case? Assume that default is extremely unlikely
A firm's bonds have a maturity of 8 years with a $1,000 face value, have an 11% semiannual coupon, are callable in 4 years at $1,154, and currently sell at a price of $1,283.09. What is their nominal yield to maturity? What is their nominal yield to ..
A company contributes 11% of total compensation into Profit Sharing Plans on the basis of Age Weighted Plan. It uses 8% as interest factor and pays the following compensation to its three employees: Elizabeth (age 55): $175,000; Santiago (age 41): $1..
Counts Accounting has a beta of 1.40. The tax rate is 35%, and Counts is financed with 35% debt. What is Counts' unlevered beta?
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