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In August 2010, an article in the Wall Street Journal observed: In the bond market . . . investors have been flocking to all manner of [bonds] . . . from Treasuries to "junk" bonds. The attraction: steady interest payments which would become increasingly valuable if deflation were to take hold.
a. Why would the interest payments on bonds become more "valuable" if deflation were to occur?
b. If deflation occurred, would the nominal interest rates on these bonds be higher or lower than the real interest rates? Briefly explain.
Jane just purchased bonds with a $1,000,000 total par value and a coupon rate of 5%. If the bond has a maturity of 10 years, pays semi-annual coupons, and the current yield to maturity is 6%, what is the current market value of the bonds? What is the..
Fama's Llamas has a weighted average cost of capital of 12 percent. The company's cost of equity is 15.5 percent, and its pretax cost of debt is 8 percent. The tax rate is 32 percent. What is the company's target debt-equity ratio? (Do not round your..
The last dividend of Gamma, Inc was $7.55, the growth rate of dividends is expected to be 4.76%, and the required rate of return on this stock is 14.86%. What is the stock price according to the constant growth dividend model (Gordon model)?
Short Selling under what conditions might investors consider short selling a specific stock? SEC Structure and Role Briefly describe the structure and role of the Securities and Exchange Commission (SEC).
Prince Systems(PS) has 500,000 shares of common stock outstanding and its EPS is $7. The firm has a dividend payout ratio of 35% and the current market price of its stock is $75.
Your firm is contemplating the purchase of a new $672,000 computer-based order entry system. The system will be depreciated straight-line to zero over its six-year life. Working capital will revert back to normal at the end of the project. Assume the..
An externality is a situation where a project would have an adverse effect on some other part of the firm's overall operations. If the project would have a favorable effect on other operations, then this is not an externality. An example of an extern..
A stock has a beta of .95, the expected return on the market is 21 percent, and the risk-free rate is 4.00 percent. What must the expected return on this stock be?
Image Storage Corporation has 1,000,000 shares outstanding. It wishes to issue 500,000 new shares using a (North American) rights issue. If the current stock price is $50 and the subscription price is $47/share, calculate the value of a right.
If you invest $500 today and can earn a 9.00% nominal rate of return with semiannual compounding, what will be your effective annual rate of return? If you save $330 a month for retirement and you can earn a nominal 8.60% rate of return with monthly ..
A group of securities with similar characteristics is called a(n). In the accumulation phase of the investor life cycle.
The second lease, Lease B, is a 5-year net lease with a base rent of $25/sf with expenses expected to be $10/sf in the first year. If rents will increase by $1.00/sf each year and expenses by 5% a year, what is the corresponding effective rent from t..
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