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Question - You are considering buying equity in a firm. If you purchase the equity, in one year you will receive $1.5 million with 40% probability and $1.2 million with 60% probability. Currently the yield on one year T-bills is 4%. Suppose that you require a risk premium of 10% to invest in the equity of this firm. In other words, your minimum required return on this investment is 14%.
(a) What is the most you would be willing to pay for the equity?
(b) If you pay this, what is the expected rate of return on your investment?
(c) What is the standard deviation of the return to your investment in the firm?
Green Gadgets Inc. is trying to decide whether to cut its expected dividend for next year from $9 per share to $6 per share in order to have more money.
FINC620- Which one of the following parties is considered a stakeholder of a firm? A business formed by two or more individuals who each have unlimited liability for business debts is called a.
What critical aspects related to making concessions during the negotiations process are necessary in order to achieve your strategic outcome?
It had $8,000 of bonds outstanding that carry a 14% interest rate. How much was the firm's taxable income, or earnings before taxes (EBT)?
Should special restrictions, such as using the progressive corporate tax rates, apply to controlled groups of corporations? Is there an argument against such restrictions?
Could you explain how to convert floating point numbers to 32-bit IEEE format and express the result as an hexadecimal value or a decimal value?
You borrow $85,000; the annual loan payments are $8,273.59 for 30 years. What interest rate are you being charged?
Recall an occasion when you experienced cognitive dissonance about a purchase. Describe the event, and explain what you did about it.
What is the relevant cost of new preferred stock? A. 10.00% B. 7.37% C. 10.53% D. 15.00% E. 7.00%
Onshore Bank has $20 million in assets, with risk-adjusted assets of $10 million. Tier I capital is $500,000 and Tier II capital is $400,000.
What does the efficient-market hypothesis (EMH) say about (a) Securities prices, (b) Their reaction to new information, and (c) Investor opportunities to profit? What is the behavioral finance challenge to this hypothesis?
Next year, the company will declare an ordinary dividend of 34 cents per share for the 2017 financial year and the company is expected to maintain a constant dividend pay-out ratio of 70% of after tax earnings in the future.
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