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You are considering investing in a bond that matures 20 years from now. It pays an annual end-of-year coupon rate of interest of 8.75 percent, or $87.50 per year. The bond currently sells for $919.
Your marginal income tax rate (applied to interest payments) is 28 percent.
Capital gains are taxed at the same rate as ordinary income. What is your after-tax rate of return if you buy this bond today and hold it until maturity?
Which of the following factors are included in the rating analysis of a corporate bond? Floating rate preferred stock pays a dividend that. Pass-through securities backed by pools of auto loans, credit card bills, and computer leases are known as. li..
What steps can stockholders take to reduce the cost of debt? What incentives for stockholders have to do this? Are there any instances where managers’ interests and shareholders’ interests might diverge in their desire to minimize the cost of debt? E..
REH Corporation's most recent dividend was $2.42 per share, its expected annual rate of divident growth is 5%, and the required return is now 15%. A variety of proposals are being considered by management to redirect the firm's activities. Determine ..
The president's executive jet is not fully utilized. You judge that its use by other officers would increase direct operating costs by only $20,000 a year and would save $100,000 a year in airline bills. Assume that the company does not pay taxes. Al..
A loan commitment of $4.32 million has an upfront fee of 80 basis points and a back end fee of 50 basis points. The take down on the loan is 60%. Calculate the total fees you will pay on this loan commitment.
Imagine you have a pool of 30 year residential mortgages (FRMs, fully amortizing), WAC=4%, monthly payments. The pool balance at the beginning of the month is 285,634,760. The mortgages, on average, have already made three years of payments. If this ..
McLemore Industries has a zero coupon bond issue that matures in two years with a face value of $39,000. The current value of the company’s assets is $22,200, and the standard deviation of the return on assets is 50 percent per year. Assume the risk-..
Based on your review of the Dow Jones Industrial Average performance trends from 1900 to the present, what conclusions can you draw and how may this impact your future decision to invest in the Dow Jones Index or companies. Provide support for your d..
A 3-year, $1000-face value bond promises to make annual interest payments of $84 at the end of each year. At the end, the principal of $1000 will also be repaid. If investments of similar riskiness yield 7.4%, what is the maximum you would pay for th..
The next dividend payment by ECY, Inc., will be $1.60 per share. The dividends are anticipated to maintain a growth rate of 6 percent, forever. The stock currently sells for $30 per share. What is the dividend yield? What is the expected capital gain..
First National Bank charges 11.3 percent compounded monthly on its business loans. First United Bank charges 11.4 percent compounded semiannually. As a potential borrower, you decide to compare their effective annual rates. First National Bank's busi..
What is risk aversion? If common stockholders are risk averse, how do you explain the fact that they often invest in very risky companies?
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