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Real Risk-Free Rate You read in The Wall Street Journal that 30-day T-bills are currently yielding 5.8%. Your brother-in-law, a broker at Safe and Sound Securities, has given you the following estimates of current interest rate premiums: Inflation premium = 3.25% Liquidity premium = 0.6% Maturity risk premium = 1.85% Default risk premium = 2.15% On the basis of these data, what is the real risk-free rate of return? Round your answer to two decimal places.
You are going to pay $800 into an account at the beginning of each of 20 years. The account will then be left to compound for an additional 20 years. At the end of the 41st year you will begin receiving a perpetuity from the account. If the account p..
Stanford Simmons, who recently sold his Porsche, placed $10,000 in a savings account paying annual compound interest of 6 percent. Calculate the amount of money that he will have accrued if he leaves the money in the bank without making any additiona..
Which of the following four investments has the highest PV? (Assume your required rate of return is 5% annually)
JJ Industries will pay a regular dividend of $0.75 per share for each of the next four years. At the end of four years, the company will also pay out a liquidating dividend. If the discount rate is 12 percent, and the current share price is $75, what..
A firm offers terms of 2.4/7, net 60. a. What effective annual interest rate does the firm earn when a customer does not take the discount? (Use 365 days a year. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 deci..
A stock is trading at $75 per share. The stock is expected to have a year-end dividend of $2 per share (D1 = $2), and it is expected to grow at some constant rate g throughout time. The stock's required rate of return is 15% (assume the market is in ..
Clyde’s Smoke Shop has cash of $750, accounts receivable of $150, inventory of $300, and accounts payable of $600. What is the value of Clyde’s quick ratio?
The U.S. Federal Reserve has kept interest rates at a very low level for the last 5 years. How do you think these low interest rates affect the price of U.S. stocks? What do you think will happen to the value of U.S. stocks when the U.S. Federal Rese..
Recommend a strategy for financial administrators to balance the tension between having inventory on hand when it is needed versus the carry cost to the organization. Provide support for your recommendation.
Lower risk free rates results in __________ Put Option prices and ______ Call Option Prices. Which statement regarding executive stock options is correct?
If the current 180 day inter-bank Eurodollar rate is 15% (all rates are started on an annualized basis, and next period’s LIBOR is 13%, then a Eurocurrency loan priced at LIBOR plus 1% will cost. Suppose affiliate A sells goods worth $1 million month..
McLemore Industries has a zero coupon bond issue that matures in two years with a face value of $35,000. The current value of the company’s assets is $19,900, and the standard deviation of the return on assets is 54 percent per year. Assume the risk-..
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