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An analyst evaluating securities has obtained the following information. The real rate of interest is 2.7% and is expected to remain constant for the next 5 years. Inflation is expected to be 2.6% next year, 3.6% the following year, 4.6% the third year, and 5.6% every year thereafter. The maturity risk premium is estimated to be 0.1 × (t – 1)%, where t = number of years to maturity. The liquidity premium on relevant 5-year securities is 0.5% and the default risk premium on relevant 5-year securities is 1%.
a. What is the yield on a 1-year T-bill? Round your intermediate calculations and final answer to two decimal places. %
b. What is the yield on a 5-year T-bond? Round your intermediate calculations and final answer to two decimal places. %
c. What is the yield on a 5-year corporate bond? Round your intermediate calculations and final answer to two decimal places. %
Mr. Richards needs more analysis to update his client presentations. He would like additional future value calculations. Using the same framework, calculate the future value pf the bank CD's that would pay 1% and 2% annual interest. Show the compound..
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Suppose you had $20 million U.S. to invest in the international bond market. Describe how you would invest your money and provide the rationale behind your chosen investments. Be sure to support your statements with arguments and examples.
The balance sheet for Stratton Co. shows $400,00 in common equity, $100,000 in preferred stock, and $500,000 in long-term debt. The company has 20,000 common shares outstanding at a market price of $65 per share. what is the firm's weighted average c..
Compact fluorescent lamps (CFLs) have become required in recent years, but do they make financial sense? Suppose a typical 60-watt incandescent lightbulb costs $.36 and lasts for 1,000 hours. If you require a 11 percent return, at what cost per kilow..
Two bonds have 10 years to maturity. Bond A has a coupon rate of 2.45% and a price of 99.805 (% of FV). Bond B has a coupon rate of 5.90% and a price of 105.214 (% of FV). The bonds make semi-annual coupon payments. Which bond is selling at a premium..
If the current stock price is $45 per share, what are the fair price for a call and a put for this stock?
Bucher Credit Bank is offering 7 percent compounded daily on its savings accounts. How much will you have in the account in 6 years?
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