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Beth Anaheim is a 70-year-old retiree who has been referred to ACG by a current ACG client. Beth's main investment objectives are safety of principal and current income. Her retirement income sources include social security, rental income from a commercial investment property managed by a professional property management firm, and a $500,000 investment portfolio consisting of several utility company stocks and corporate bonds. Beth is currently in the 30% combined federal and state marginal tax rate. Beth is considering an investment in one of the following bonds:
DES Corporate Bond: A-Rated, 9% coupon rate, maturing in 7 years (recommended by a friend).
FGR Municipal Bond: AAA-rated, 7% coupon, maturing in 7 years (recommended by her ACG investment advisor).
Using the taxable equivalent yield concept, you are to help the ACG advisor explain to Beth why the FGR bond investment could offer a higher yield and lower risk. Make sure that you present the information in as simple a manner as possible without leaving out any pertinent information.
You have just received notification that you have won the $2.11 million first prize in the Centennial Lottery. However, the prize will be awarded on your 100th birthday (assuming you’re around to collect), 69 years from now. What is the present value..
The Federal Reserve Board of Governors has decided to ease monetary conditions to counter early signs of an economic downturn. Because price inflation has been a burden in recent years, the Board is eager to avoid any action that the public might int..
Assuming the continuously compounded interest rate is r, what is the present value of a cash flow that returns the amount of M at each of time s, s+t, s+2t…….
Describe the methodology for designing tests using the audit risk model. What tests would you utilize to reduce risk in the sales and collection cycle?
Massey Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $380,000 is estimated to result in $145,000 in annual pretax cost savings. The shop’s tax rate is 30 percent and its discount ..
The expected return on the market is 12%. The risk-free rate is 3.5%. The corporation has a current stock price of $65. There are 15 million shares outstanding. The beta for the stock is 1.6. What is the cost of equity for the corporation? What is bo..
A firm has a market value equal to its book value. Currently, the firm has excess cash of $2,000 and other assets of $4,800. Equity is worth $6,800. The firm has 850 shares of stock outstanding and net income of $1,050. The firm has decided to spend ..
You take out an installment loan to purchase a time-share costing $18,000. You make a down payment of $2,700 and finance the balance by making monthly payments of $762 for 24 months. Use Table 13-1 from your text to find the APR.
HexChat, Inc. has issued 17 year bonds 5 years ago. The bonds pay semiannual coupons, with a coupon rate of 5.8 percent, and $1000 face value. If your required return on this investment is 9.8 percent APR, how much would you be willing to pay for thi..
Fly Away, Inc., has balance sheet equity of $5.8 million. At the same time, the income statement shows net income of $864,200. The company paid dividends of $466,668 and has 100,000 shares of stock outstanding. If the benchmark PE ratio is 22, what i..
Jallouk Corporation has two different bonds currently outstanding. Bond M has a face value of $50,000 and matures in 20 years. The bond makes no payments for the first six years, then pays $2,600 every six months over the subsequent eight years, and ..
TIM Corporation had 2,200,000 shares outstanding at the beginning of the year, with a common stock book value of $7,150,000. TM’s retained earnings at the start of the year were $2,000,000. Determine retained earnings and total shareholders’ equity a..
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