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Question 1) FASM Bank has designed a security that will pay a dividend of $10.00 in perpetuity. The dividend will be paid quarterly and the initial dividend will be paid one quarter from today. What is the price of the security if the stated annual interest rate is 6.5 percent, compounded quarterly?
Question 2) A European bond has a par value of 1000 Euros, a coupon rate of 3.9 percent and a yield to maturity of 3.2 percent. The bond has 19 years to maturity. Coupons are made annually. What is the value of the bond?
Question 3) ABC Inc. has 5.0 percent coupon bonds on the market with 9 years to maturity. The bonds make semi-annual payments and currently sell for 110 percent of par. What is the YTM?
Assume that all interest rates in the economy decline from 10% to 9%. Which of the following bonds would have the LARGEST percentage increase in price?
Weighted Average Cost of Capital The Global Advertising Co. has a tax rate of 36%. The company can raise debt at a 9% interest rate. Global's stock price is $12.71 per share and it recently issued a dividend of $0.85, which is expected to grow at a c..
Decision trees are often used to analyze multistage, or sequential, decisions. The Monte Carlo simulation describes uncertainty in terms of continuous probability distributions, which have a limited number of outcomes, rather than infinite discrete v..
Individuals performing ratio analysis include (1) banks evaluating potential loan applications from small businesses, (2) investment analysts evaluating the investment quality of a firm’s stock, and (3) internal management, assessing the firm’s curre..
NORREL Corporation's stock is selling for $35 per share. An investor is considering buying a call option with an exercise price of $40. The investor is willing to pay the premium of 50 cents per option. Calculate the exercise value of the option? W..
Alcott's preferred stock pays a dividend of $1.00 per quarter. If the price of the stock is $55.00, what is its nominal (not effective) annual rate of return?
A common stock will have a price of either $85 or $35 in 2 months. A two month put option on the stock has a strike price of $40. Create a riskless portfolio. Buy one put option. How many shares should you buy? Make sure that you show or explain all ..
Gardial GreenLights, a manufacturer of energy efficient lighting solutions, has had such success with its new products that it is planning to substantially expand its manufacturing capacity with a $20 million investment in new machinery.
what is the horizon value at the end of year 5? The free cash flow is expected to grow 8% from year 1 to 5 and 6% after year 5 to infinity,
A taxable corporate issue yields 7 percent. For an investor in a 35 percent tax bracket, what is the equivalent aftertax yield?
Suppose that the average annual return on the Standard and Poor's 500 Index from 1969 to 2005 was 14.8 percent. The average annual T-bill yield during the same period was 5.6 percent. What was the market risk premium during these 10 years?
An option strategy in which you hold a long position in both a put and a call option with the same strike price is called. A credit default swap is essentially a
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