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Risky Co has 10-year bonds outstanding with a coupon rate of 12% and face value of $1000. Interest is paid semi-annually and the investor's required rate of return is 18% per year (due to the company's high risk of default). What is the value of a RiskyCo bond?
Assume the returns on an asset are normally distributed. Suppose the historical average annual return for the asset was 6.7 percent and the standard deviation was 12.6 percent. What is the probability that your return on this asset will be less than ..
Vegas & Vegas Co.” is a large and a successfully growing company in Las Vegas which owns many properties across the city (this is a fictional company, by the way!). The owner of the company has been contemplating for a long time to shut one of the ex..
Covered Interest Arbitrage in Both Directions. The following information is available: You have $500,000 to invest The current spot rate of the Moroccan dirham is $.110. What is the yield to a U.S. investor who conducts covered interest arbitrage? Di..
Rust Pipe Co. was established in 1994. Four years later, the company went public. At that time, Robert Rust, the original owner, decided to establish two classes of stock. The first represents Class A founders' stock and is entitled to eleven votes p..
A firm needs $1.5 million of new long-term financing. The firm is considering the sale of common stock or a convertible bond. The current market price of the common stock is $16 per share. To sell this new issue, the stock would have to be underprice..
A firm has the following account balances. Which one of the following statements is correct concerning those balances? Accounts Receivable is a $900 source of cash. Long-term debt is a $5,800 source of cash.
Calculate the expected return and risk (standard deviation) for General Fudge for 200X, Suppose you had to choose between General Fudge and Stock B, with expected return E(rB)=9% and ?B=6%. Which is preferred on a stand-alone basis?
You put $2,000 in an investment account today which will earn 8% over the next 14 years, what is the future value?
Wine & Rose Inc. offers a 6 percent coupon bond that has a $1,000 par value, semiannual coupon payments and a yield to maturity of 5.43 percent. The bond matures in 9 years. What is the price of the bond? What will happen to the price if market inter..
If these two assets are in the same portfolio, would that be better or worse for the portfolio return? Can you tell by a quick examination, and how?
Inflation’s impact on price of an asset. Tyler is working on his pilot’s license and dreams of one day owning his own personal aircraft. Tyler is putting away $1,250 per month in an account earning 9.25% annually. The plane he would like to buy curre..
The Imaginary Products Co. currently has $300 million of market value debt outstanding. The 9 percent coupon bonds (semi-annual) have a maturity of 15 years and are currently priced at $1,440.03 per bond. If Imaginary is subject to a 40 percent margi..
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