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1. Assume that a 26-week T-Bill is being offered at a 1.27% discount rate. Based on a $100,000 par value, what would be the initial price of this bill and how much interest would you earn over the 26 weeks? What would be the Effective Yield on this bill? Why is the effective yield different form the discount yield? Now assume that you sell the T-Bill at a current market discount rate of 1.65% after owning it for 15 weeks. What actual rate of return, on an annual basis, did you earn over the 15-week period?
2. A Treasury STRIP with 20 years remaining until maturity and a par value of $100,000 is being quoted at a yield of 2.65%. What would the current market price of this bond? What would be the price 5 years from now if interest rates have increased to 4.50%?
3. If you are in the 35% tax bracket, would you prefer to invest in a municipal bond with a yield of 3.80% or a corporate bond with a yield of 4.72%. Explain. Also explain what the relationship between municipal bond yields and taxable bond yields is and why we see that. You may assume equal risk.
Sam Lawson is a vice president at a large communications firm. His compensation includes a salary of $400,000, a bonus of $200,000, and a stock option package that allows him to purchase 30,000 shares of the company's stock at $45 per share. If the c..
The length of time between the sale of inventory and the collection of cash from receivables is called the:
Calculate the profit per share for an investor that exercises a put option with a strike price of $60 when the stock is selling for $46 and the premium for the put option was $4.
Suppose you purchase 1,050 shares of stock at $76 per share with an initial cash investment of $30,000. The call money rate is 5 percent and you are charged a 1.5 percent premium over this rate. Calculate your return on investment one year later if t..
Sarah and James Hernandez purchased 300 shares of Cisco Systems stock at $18.15 a share. One year later, they sold the stock for $23.10 a share. They paid a broker a $36 commission when they purchased the stock and a $50 commission when they sold the..
A five-year project has an initial fixed asset investment of $360,000, an initial NWC investment of $40,000, and an annual OCF of −$39,000. The fixed asset is fully depreciated over the life of the project and has no salvage value. If the required re..
Must give an equation using estimated figures from Starbucks. construct an equation to calculate the expected or required rate of return for starbucks using the APT model.
Ella Funt would like to set up her retirement account that will begin in 30 years. To play it safe, she wants to assume that she will live forever and she will withdraw $160,000 annually. Assuming her account will earn 10% interest during the next 30..
XYZ, Inc. pays $105,000 in rent for its factory, and its factory manager receives annual compensation of $100,000. It sells the units produced at $10 a unit. If the raw material costs are $1.95 and the direct labor costs are $2.20 per unit. what is i..
Assume that the daily volatilities of both assets are 1% and that the coefficient of correlation between their returns is 0.3. What is the 5-day 99% VaR for the portfolio?
Consider a bakery that estimates its requirement of wheat in May as 50,000 bushels. The manager of the bakery can hedge against price risk by going long on 10 May wheat futures contracts at the currently prevailing futures price of $8.65 a bushel for..
Two sports apparel stores in Gainesville have the following: Store 1 has current assets of $800,000, current liabilities of $1 million and no inventory. Store 2 has current assets $1.2 million, current liabilities of $900,000 and an inventory worth $..
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