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Describe in a few short sentences what role derivatives played in the 2008 financial crisis. Give an example of how a derivative may be used to hedge risk and an example of how a derivative may be used as a speculative tool (i.e. just to make a directional bet on something).
Debt issued by Southeastern Corporation currently yields 12%. A municipal bond of equal risk currently yields 8%. At what marginal tax rate would an investor be indifferent between these two bonds?
Klingon Empire Pharmaceuticals is expecting a growth rate of 14% for the next two years due to its new flu preventive drug, Katterracsin. Thereafter it should level to an 8% growth rate. The last dividend paid was $.65 per share. What price should th..
Great Pumpkin Farms just paid a dividend of $4.00 on its stock. The growth rate in dividends is expected to be a constant 6 percent per year indefinitely. Investors require a return of 15 percent for the first three years, a return of 13 percent for ..
The market price of a security is $70. Its expected rate of return is 12%. The risk-free rate is 7%, and the market risk premium is 7%. What will the market price of the security be if its beta doubles (and all other variables remain unchanged)? Assu..
You bought a house for $130,000 using a 20 year mortgage at 5.5% interest to be paid monthly. What is your payment? Your parents agree to give you $10,000 toward your home. They offer either to make a down payment or paying off the final $10,000. A. ..
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..
Which of the two is a better financing decision, and why? Show all formulas required to perform these calculations and fully explain your decision making process.
Atlantis Fisheries issues zero coupon bonds on the market at a price of $421 per bond. These are callable in 7 years at a call price of $640. Using semi annual compounding, what is the yield to call for these bonds?
Consider a firm with an EBIT of $10,500,000. The firm finances its assets with $50,000,000 debt (costing 6.5 percent) and 10,000,000 shares of stock selling at $10.00 per share. Calculate the change in the firm’s EPS from this change in capital struc..
Recently, you sold 1,000 shares of stock for $21,400. The sale was a short sale with an initial margin requirement of 60 percent. The maintenance margin is 30 percent. The stock is currently trading at $27.50 a share. What is your current margin posi..
Compare and contrast the three tools used to deal with uncertainty in discounted cash flow analysis: scenario analysis, break-even analysis, and simulation.
Ways the regional Federal Reserve banks influence the conduct of monetary policy include ______. Criteria for the Fed choosing a policy instrument includes _______. Standard accounting principles help financial markets work more efficiently by ______..
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