Security A pays $30 if state 1 occurs and $10 if state 2 occurs. - Set up the payoff table for securities A and B. - Determine the prices of the two pure securities.
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Red Shoe Co. has concluded that additional equity financing will be needed to expand operations and that the needed funds will be best obtained through a rights offering. Assume that the increment to the market value of the equity equals the gross pr..
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Your job pays you only once a year for all the work you did over the previous 12 months. Today, December 31, you just received your salary of $68,000 and you plan to spend all of it. However, you want to start saving for retirement beginning next yea..
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A life insurance company offers the option of receiving $500,000 as a lump-sum, or $60,000 per year over 10 years. If market interest rates are 5%, what is the present value of the annual cash payment option? Suppose market interest rates are 2.5%, w..
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Gary’s Pipe and Steel company expects sales next year to be $1,000,000 if the economy is strong, $700,000 if the economy is steady, and $385,000 if the economy is weak. Gary believes there is a 20 percent probability the economy will be strong, a 65 ..
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Maggie's Muffins, Inc., generated $2,000,000 in sales during 2013, and its year-end total assets were $1,600,000. Also, at year-end 2013, current liabilities were $1,000,000, consisting of $300,000 of notes payable, $500,000 of accounts payable, and ..
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The Rodriguez Company is considering an average-risk investment in a mineral water spring project that has a cost of $145,000. The project will produce 750 cases of mineral water per year indefinitely. Assume that cash flows consist only of after-tax..
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What did investors expect the interest rate to be on the one-year Treasury bill two years from that date if the term premium on a two-year Treasury note was 0.02%.
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What is the effective borrowing rate (EBR) for the following 6-month (182-day) line of credit: CL = total credit line $650,000; AL = Average outstanding amount $389,000; CF = Commitment fee 0.36% (not annualized) on unused line; IR = Annual Interest ..
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Wayco Industrial Supply has a pre-tax cost of debt of 7.6 percent, a cost of equity 14.3 percent, and a cost of preferred stock of 8.5 percent. The company's tax rate is 37 percent. What is the firm's weighted average cost of capital?
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You own a two-bond portfolio. Each has a par value of $1,000. Bond A matures in five years, has a coupon rate of 8 percent, and has an annual yield to maturity of 9.20 percent. Both bonds pay interest semi-annually. What is the value of your portfoli..
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Paradise Adventures just paid a dividend of $2.00. They are growing rapidly and are expecting to grow dividends at 20% for the next two years and then 10% in the third year before reducing the dividends to a constant growth rate of 3%. If the require..
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