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(a) What is the expected annual return on Caterpillar if it has a beta of 0.90; the annual one-year Treasury bill rate is 2.24%%; and the expected return on the Standard & Poor’s 500 is 8%? Also, please explain, in a few sentences, the intuition behind your result (i.e., the relationship between beta and expected return).
(b) In the above problem, if the twenty-year bond interest rate increases to 6.88%, what is the percentage change in the price of the bond? Please briefly explain why the price changed the way it did.
Find the present value of the following ordinary annuities: using the TVM CALCULATOR find a. FV of $400 each six month for five years at a simple rate of 12%, compounded semiannually. b. FV OF$200 each three months for five years at a simple rate of ..
Dan and Mary Green are in their mid-30s and have two children, ages 8 and 5. They have combined annual income of $95,000 and own a house in joint tenancy with a market value of $310,000, on which they have a mortgage of $250,000. As their ?nancial pl..
Scotto Manufacturing is a mature firm in the machine tool component industry. what will be the value of Scotto’s common stock?
Which firm would you expect to pay out more to its shareholders this year? Which firm would you expect to have higher payouts in the future?
Define and compare capital rationing vs unlimited funds in the capital budgeting process, and describe when a firm would use capital rationing.
what is the dollar amount of interest that is earned from earlier interest (rather than off of the original principal)?
Cecelia Thomas is a sales executive at a Baltimore firm. She is 25 years old and plans to invest $3,000 every year in a retirement account,beginning at the end of this year until she turns 65 years old. If the investment will earn 9.75 percent annu..
DSMN's dividend policy is to pay out 50 percent of each year's earnings as dividends. DSMN's marginal tax rate is 40 percent, and its average tax rate is 35 percent. Compute DSMN's cost of internal equity capital.
Describe the underlying assumptions and differences for the Capital Asset Pricing Model (CAPM) and the Arbitrage Pricing Theory (APT). Provide an example in which type of situation each would be most appropriate to the task.
What is the covariance between stocks A and B?
An asset was purchased three years ago for $100,000 and can be sold for $40,000 today. The asset has been depreciated using the MACRS 5-year recovery period and the firm pays 40% taxes on both ordinary income and capital gain. SHOWING WORK- Compute t..
The current yield to maturity on such bonds in the market is 7 percent. Compute the price of the bonds if you know that the bond maturity dates 30 years.
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