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1. You are willing to pay $15,625 to purchase a perpetuity that will pay you and your heirs $1,250 each year, forever. If your required rate of return does not change, how much would you be willing to pay if this were a 20-year annual payment, ordinary annuity instead of perpetuity?
2. Find the present value of a $100, 5-year ordinary annuity plus a final payment of $1,000 at a discount rate of 12%.
3. Assume that you are paying $927.90 to buy a $100, 5-year ordinary annuity plus a final payment of $1,000. Compute the rate of return on the investment.
Relation between spot and discount rates Suppose the spot rates for 1 and 2 years are s1=10.5% and s2=17.9% with annual compounding. Recall that in this course interest rates are always quoted on an annual basis unless otherwise specified. What is th..
When combining fund statements into the government-wide statement of net assets with component units, if one of the units has a funds allocated to a special revenue fund in cash, will I combine the general fund cash and the special revenue fund cash ..
Suppose that you buy an interest rate cap on three month LIBOR with a two year maturity and simultaneously sell a floor on three month LIBOR with a two year maturity. Ignore the premiums. Draw a profit diagram that indicates when you will gain and lo..
What are the following call options' intrinsic values and time premiums if the price of the underlying stock is $55? Option strike price, Price of the call, Call at $50 $7.00 Call at $55 3.00 Call at $60 0.50
1.how firms estimate their cost of capital the wacc for a firm is 13.00 percent. you know that the firmrsquos cost of
Which one of the following could cause the total return on an investment to be a negative rate? Constant annual dividend amount Stock price that declines over the investment period Stock price that remains constant over the investment period Stock pr..
The Oceanic Corporation, a Chesapeake, VA based company, was established in 1994. Glenn Rodgers III founded the corporation, which was privately owned at the time, after his retirement from Norentech Corporation. Comment on Stephanie’s assumptions as..
Which of the following should be included in the analysis of a new product? I. money already spent for research and development of the new product II. reduction in sales for a current product once the new product is introduced III. increase in accoun..
Think about the cash flows associated with putting in the bank for five years, assuming you draw out the interest each year and then close the account. Now think about a set of hypothetical cash flows associated with putting the same money in a busin..
Which of the following factors is the critical or deciding characteristic that indicates that a trust should be classified as a charitable remainder uni trust, rather than a charitable remainder annuity trust?
Suppose that General Motors Acceptance Corporation issued a bond with 10 years until maturity, a face value of $1,000, and a coupon rate of 7.9% (annual payments). The yield to maturity on this bond when it was issued was 5.5%. What was the price of ..
Wizard Electronics Company's actual sales and purchases for April and May are shown here along with forecasted sales and purchases for June through September. The maximum desired cash balance is $50,000. Excess cash (above $50,000) is used to buy mar..
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