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You have finally saved $10,000 and are ready to make your first investment. You have the three following alternatives for investing that money:
• Capital Cities ABC, Inc. bonds with a par value of $1,000, that pays an 8.75 percent on its par value in interest, sells for $1,314, and matures in 12 years.• Southwest Bancorp preferred stock paying a dividend of $2.50 and selling for $25.50.• Emerson Electric common stock selling for $36.75, with a par value of $5. The stock recently paid a $1.32 dividend and the firm's earnings per share has increased from $1.49 to $3.06 in the past five years. The firm expects to grow at the same rate for the foreseeable future.Your required rates of return for these investments are 6 percent for the bond, 7 percent for the preferred stock, and 15 percent for the common stock. Using this information, answer the following questions.
a. Calculate the value of each investment based on your required rate of return.b. Which investment would you select? Why?c. Assume Emerson Electric's managers expect an earnings downturn and a resulting decrease in growth of 3 percent. How does this affect your answers to parts a and b?d. What required rates of return would make you indifferent to all three options?
An investor has two bonds in his or her portfolio, Bond C and Z. Each matures in four years, has a face value of $1,000, and has a yield to maturity of 9.6%.
AirJet Best Parts Inc. is now considering that the appropriate discount rate for the new machine should be the cost of capital and would like to determine it. You will assist in the process of obtaining this rate.
Barneycle's Boat Shop sells 3000 of its glow in the dark boats each year and has fixed order costs of 120 each order. Carrying cost per boat is $150 per year. Determine the optimal order quantity for these boats?
You want $20,000 in 5 years to take your spouse on a second honeymoon. Your investment account earns 7% compounded semiannually. How much money must you put in the investment account today? (round to the nearest $1)
Calculate the Sharpe ratio, Treynor ratio, Jensen's alpha, information ratio, and R-squared for both funds and determine which is the best choice for your portfolio.
Velcro Saddles is contemplating the acquisition of Pogo Ski Sticks, Inc. The values of the two companies as separate entities are $20 million and $10 million, respectively. What is the gain from merger?
What is the price(expressed as a percentage of the face value) of a one-year, zero-coupon corporate bond with a AAA rating?
What is the outstanding balance on the loan right after you have made your 30th payment?
How does inflation affect the country's exchange rate? How is the equilibrium exchange rate determined and what factors affect it?
What would be the cost of equity if the debt-equity ratio were 2? What if it were 1? What if it were 0?
Describe your recommendations for each of these three companies. Consider the nature of their business, the riskiness of company, and advantages and disadvantages of debt over equity financing in your answers.
Explain Current market price of bond and What is the current market price of the bond
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