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Assume all rates are annualized with semi-annual compounding. Please be explicit about how you derive your results and round to four decimals after the comma. Suppose that at time 0 you buy a 10%-coupon 20-year bond priced at par, and at time 0.5 you sell this bond at a yield of 12%.
a. What is your time 0.5 payoff per $1 of initial investment?
b. What is the rate of return on your investment (annualized, with semi-annual compounding)?
Although Statement No. 34 requires that infrastructure assets be accounted for similarly to other capital assets, it allows for a major exception with regard to depreciation. What is that exception? A government’s interest expenditure, as reported in..
Suppose the spot exchange rate for Narnianly currency is trading for $2/N and one year later it can go up to $2.5/N, an increase of 25 percent, or down to $1.80/N, a decrease of 10 percent. assume intiallly that the U.S. interest rate is 1 percent an..
Assume a firm’s cost of capital with zero debt is 0.15 and the cost of debt is 0.08. The value of the unlevered firm is Vu = (150,000/0.15)= $1,000,000. Determine the value of the firm (no cost of financial distress and no investor taxes). The corpo..
Explain how and why the shareholders' return requirements are influenced by a company's unsystematic and systematic risks. How is the capital of the company and the value of the company if the central bank suddenly decides to sharply raise the policy..
A share of stock just paid a dividend of $1.2, with an expected dividend growth of 4.6 percent forever. According to the constant perpetual growth model, if the required return is 14.8 percent, what should the value of the stock be 2 years from now?
Copper company CCT has three million common shares outstanding and perpetual debt with a market value of $30 million. Its interest rate is 8%, and its corporate tax rate is 40%. Its levered beta is 1.2. The risk-free rate is 3% and the market portfol..
The Lo Sun Corporation offers a 5.2 percent bond with a current market price of $865.50. The yield to maturity is 6.24 percent. The face value is $1,000. Interest is paid semiannually. How many years is it until this bond matures?
FARO techonologies, whose products include portable 3D measurement equipment, recently had 17 million shares outstanding trading at $42 a share. Suppose the company announces its intention to raise $200 million by selling new shares. What do market s..
Morrison Tobacco Co. just paid a dividend of $3.11 per share. The company is in a state of decline, decreasing its dividend by 20 percent next year, 15% the year after that, 10% the year following until it reaches the industry average of -5 percent d..
Grader Construction Company has just hired you as a consultant to value the company for possible sale. Last year they had EBIT of $25 million. The firms tax rate is 35%, Depreciation expense was $5.00 million and expected to remain at 20% of EBIT for..
The Nullcom Inc. is considering to purchase a new machine. The cost of the machine is $200,000 and installation of $10,000. The machine will be depreciated straight-line to zero. The new machine needs an increase of new working capital of $30,000. Wh..
Becky Martinez paid $65 a share for stock in GBX Corporation. The stock has a current market value of $48 a share and pays $1.60 a year in dividends. What is the dividend yield?
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