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Top hedge fund manager Diana Sauros believes that a stock with the same market risk as the S&P 500 will sell at year-end at a price of $59. The stock will pay a dividend at year-end of $4.00. Assume that risk-free Treasury securities currently offer an interest rate of 1.6%. Average rates of return on Treasury bills, government bonds, and common stocks, 1900–2013 (figures in percent per year) are as follows. Portfolio Average Annual Rate of Return Average Premium (Extra return versus Treasury bills) Treasury bills 3.9 Treasury bonds 5.2 1.3 Common stocks 11.5 7.6 What is the discount rate if the interest rate is 4.0%? (Enter your answer as a percent rounded to 2 decimal places.) Discount rate % What price should she be willing to pay for the stock today? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Stock price $
If average daily remittances are $1 million, and "extended disbursement float" adds 10 days to the disbursement schedule, how much should the firm be willing to pay for a cash management system if the firm earns 11% on excess funds.
Curran Contracting is issuing new 25-year bonds that have warrants attached. If not for the attached warrants, the bonds would carry an 11% annual interest rate. However, with the warrants attached the bonds will pay an 8% annual coupon. There are 30..
What are the portfolio weights for a portfolio that has 122 shares of Stock A that sell for $32 per share and 102 shares of Stock B that sell for $22 per share? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g.,..
Rezek Razors issued a bond 5 years ago with a 5% coupon and a par value of $310 million. The bond currently yields 6% and trades at 105% of par. The company also issued a bond 3 years ago with a 6% coupon and a par value of $120 million. The bond cur..
Determine the annual financing cost, before considering cost savings and bad-debt losses. Determine the annual financing cost, after considering cost savings and bad-debt losses.
JP Morgan Chase & Co. bank plans on taking a position in Treasury bond futures contracts, which currently have a quote of 105. JP Morgan Chase & Co. bank expects the interest rates to increase over the period of the investment. (The investment in T-b..
McGilla Golf has decided to sell a new line of golf clubs and would like to know the sensitivity of NPV to changes in the price of the new clubs and the quantity of new clubs sold. The clubs will sell for $900 per set and have a variable cost of $500..
Portfolio beta An individual has $30,000 invested in a stock with a beta of 0.6 and another $60,000 invested in a stock with a beta of 1.2. If these are the only two investments in her portfolio, what is her portfolio's beta? Round your answer to two..
Suppose a firm estimates its WACC to be 10%. Should the WACC be used to evaluate all of its potential projects, even if they vary in risk? If not, what might be "reasonable" costs of capital for average-, high-, and low-risk projects?
Describe with a graph the payoff from the following portfolio: a long forward on some asset and a long put option on the same asset with the same maturity as the forward contract, and a strike price that is equal to the forward price at the time the ..
Three Guys Burgers, Inc., has offered $15.5 million for all of the common stock in Two Guys Fries, Corp. The current market capitalization of Two Guys as an independent company is $14.3 million. Assume the required return is 9 percent and the synergy..
A stock is expected to pay a dividend of $0.75 at the end of the year. The required rate of return is 12.5%, and the expected constant growth rate is g = 8.5%. What is its current price?
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