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Default Risk Premium The real risk-free rate, r*, is 2.25%. Inflation is expected to average 2.5% a year for the next 4 years, after which time inflation is expected to average 3.4% a year. Assume that there is no maturity risk premium. An 11-year corporate bond has a yield of 9.8%, which includes a liquidity premium of 0.45%. What is its default risk premium? Round your answer to two decimal places. %
Consider the following hypothetical convertible bond: Calculate each of the following: Conversion value, Market conversion price, Conversion premium per share, Conversion premium ratio
Your firm is contemplating the purchase of a new $642,000 computer-based order entry system. The system will be depreciated straight-line to zero over its six-year life. Suppose your required return on the project is 8 percent and your pretax cost sa..
The financial manager may be responsible for any of the following except:
Todd, age 40, is considering the purchase of a $100,000 participating ordinary life insurance policy. The annual premium is $2280. Projected dividends over the first 20 years are $15,624. Based on the surrender cost index, calculate the cost per $100..
You are going to value Lauryn’s Doll Co. using the FCF model. After consulting various sources, you find that Lauryn has a reported equity beta of 1.8, a debt-to-equity ratio of 0.3, and a tax rate of 30 percent. Based on this information, what is La..
Rowan Company has a net profit margin of 8.3 percent, debt ratio of 58 percent, total assets of $5,106,200, sales of $6,663,600, and a dividend payout ratio of 62 percent. What will the firm’s new net profit margin have to be in order to achieve the ..
Assume a New York bank is quoting a spot rate for the Japanese yen at JY135/$. Also assume that a bank in London is quoting a spot rate for yen of $.008100/JY. If you had $1,000,000, how could you set up a buy – sell transaction to take advantage of ..
You own a portfolio equally invested in a risk-free asset and two stocks. One of the stocks has a beta of 1.15 and the total portfolio is equally as risky as the market. What must the beta be for the other stock in your portfolio?
You have an outstanding student loan with required payments of $600 per month for the next four years. The interest rate on the loan is 10% APR (monthly). Now that you realize your best investment is to prepay your student loan, you decide to prepay ..
Sambuka, Inc., can issue bonds either in U.S dollars or in Swiss francs. Dollar- denominated bonds would have a coupon rate of 15 percent; Swiss franc-denominated bonds would haev a coupon rate of 12 percent. what is the annual cost of financing for ..
Grandview Clinic has fixed costs of $2 million and an average variable cost rate of $15 per visit. Its sole payer, an HMO, has proposed an annual capitation payment of $150 for each of its 20,000 members. Past experience indicates that the population..
Consider a newly issued TIPS bond with a 3-year maturity, par value of $1,000, and coupon rate of 5.40%. Assume annual coupon payments. Time Inflation in Year Just Ended Par Value Coupon Payment + Principal Repayment = Total Payment 0 $ 1,000.00 1 3...
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