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Suppose you owned a portfolio consisting of $250,000 of U.S. government bonds with a maturity date of 30 years. Would your portfolio be riskless? What if your portfolio consisted of $250,000 of 30-day Treasury bills? Every 30 days your bills mature, and you reinvest the principle ($250,000) in a new batch of bills. Assume that you live on the investment income from your portfolio and that you want to maintain a constant standard of living. Is your portfolio truly riskless? Can you think of any asset that would be completely riskless? What security comes closest to being riskless? Explain.
Find a call option and put option for a publicly traded company that have the same expiration date and exercise price. Calculate the price of the call and put options using the Black-Sholes pricing model. Assume r = 1% and σ = .20
You own 12 put option price contracts on stock. You paid an option premium of $1.12 for a strike price of $47.50. On the option expiration date, the stock was selling for $46.30 a share. What is your percentage return?
Sioux Financial Corp. has forecasted its bond portfolio value for one year ahead to be $105 million. In one year, it expects to receive $10,000,000 in coupon payments. The bond portfolio today is worth $101 million. What is the forecasted return of t..
Muncy, Inc., is looking to add a new machine at a cost of $4,133,250. The company expects this equipment will lead to cash flows of $819,822, $863,275, $937,250, $1,020,110, $1,212,960, and $1,225,000 over the next six years. If the appropriate disco..
Locate the Treasury issue in Figure 7.4 maturing in November 2028. Assume a par value of $10,000. What is its coupon rate? What is its bid price in dollars? What was the previous day’s asked price in dollars?
Scott is purchasing a home for $220,000. The down payment is 30% and the balance will be financed with a 15- year mortgage at 8% and 4 discount points. Scott made a deposit of $10,000 when the sales contract was signed. If the sellers are responsible..
Essex Biochemical co has $1,000 par value bond outstanding that pays 15 percent anual interest. The current yield to maturity on such bonds in the market is 17 percent. Compute the price of the bonds for these maturity dates:
The Five & Dime store has a cost of equity of 15.8%, a pretax cost of 7.7%, and a tax rate of 35%. What is the firm's weighted average cost of capital if the debt-equity ratio is 0.40?
Please provide a thorough discussion on the different bond features someone might consider pref. For example, some bonds are tax free (municipal bonds), some are insured. Of course there is a trade off between risk and return. Do you think that there..
An investment has expected cash flows of -$200, $100, $220, $90 and $45 at the end of years 0 through 4, respectively. The required return is 8.5%. Estimate the investment's Equivalent Annual Annuity.
Project S costs $2100 up front, and its expected net cash inflows are $840 per year for 8 years (with the first inflow occurring one year from today). If the WACC is 11% the project's NPV is $_________. Project L costs $3600, its expected cash inflo..
Lycan, Inc., has 8.8 percent coupon bonds on the market that have 7 years left to maturity. The bonds make annual payments. If the YTM on these bonds is 10.8 percent, what is the current bond price?
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